Diversification of portfolio can ?
Correct answer: D. reduce idiosyncratic risk
- A. reduce aggregate risk
- B. eliminate all risk
- C. increase the standard deviation of the portfolio's return
- D. reduce idiosyncratic risk
Explanation
Diversification spreads investments across assets whose individual risks are not perfectly correlated, thereby reducing idiosyncratic or unsystematic risk. It cannot eliminate systematic market risk altogether.
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