Role of Diversification in Risk Management

Very Easy Alternative Investment Evaluation Risk Management

In the context of alternative investments, risk management is essential for mitigating potential losses. One common approach to managing risk is diversification.

Which of the following statements best describes the role of diversification in risk management?

Diversification eliminates all investment risk.

Diversification helps to reduce unsystematic risk by spreading investments across different assets.

Diversification is primarily used to increase expected returns without impacting risk.

Hint

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