ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -It is one way to balance risk and reward in your investment portfolio by diversifying your assets. Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.

Detailed explanation-2: -Diversification is the spreading of your investments both among and within different asset classes. And rebalancing means making regular adjustments to ensure you’re still hitting your target allocation over time. All are important tools in managing investment risk.

Detailed explanation-3: -Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk.

Detailed explanation-4: -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. However, it doesn’t eliminate market risk, which is the risk of owning that type of asset at all.

Detailed explanation-5: -Risk diversification is the process of investing across a range of industries and categories within one portfolio. This ensures that even if some assets perform poorly, other areas of the portfolio associated with different sectors can cover the loss.