ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -This strategy has many different ways of combining assets, but at its root is the simple idea of spreading your portfolio across several asset classes. Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomach-churning ups and downs.

Detailed explanation-2: -While diversification can reduce risk, it can’t eliminate all risk. Diversification reduces asset-specific risk – that is, the risk of owning too much of one stock (such as Amazon) or stocks in general, relative to other investments.

Detailed explanation-3: -Which of the following statements about diversification is TRUE? Diversification is an investment strategy that mixes a wide variety of investments from different categories within a portfolio.

Detailed explanation-4: -The risks of diversification strategy Unlike market penetration strategy, diversification strategy is considered high risk not only because of the inherent risks associated with developing new products, but also because of the business’s lack of experience working within the new market.

Detailed explanation-5: -Likewise, diversification helps to reduce credit risk because if all the money is kept with one industry, the industry falls whole investment will be wrong. So, with the help of diversification, investment gets distributed into different sectors, which help to reduce the credit risk or default risk.