Purpose of Diversification in Alternative Investments Risk Management

Easy Alternative Investment Evaluation Risk Management

In managing alternative investments, it is crucial to understand the dynamics of risk and the measures that can be utilized to safeguard against potential losses. One common approach used to mitigate risk in this context involves diversifying the investment portfolio.

Which of the following best describes the primary purpose of diversification in the risk management of alternative investments?

To eliminate all investment risk associated with alternatives.

To reduce the overall risk of the portfolio by spreading investments across various assets.

To ensure higher returns are achieved regardless of market conditions.

Hint

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