Choose Correct Answer of which of the following statements about diversification is incorrect?
A) Mutual funds typically have a diversified portfolio.
B) Diversification reduces risk.
C) Risk-bearing financial institutions employ diversification.
D) Diversification requires that all investments have the same risk/return characteristics.
Answer of which of the following statements about diversification is incorrect?
The option D is incorrect about diversification as although it offers multiple advantages, but the
main one is that it can raise profits and stabilize the average return by distributing the risk. Diversification
lowers the total risk of portfolio and safeguard that one single investment cannot negatively impact too
much by holding a variety of assets with varying performance.