Managing Market Risk Through Diversification

Very Easy Risk Management Applications Managing Market Risk

In the context of portfolio management, investors must consider various risks when making investment decisions. Market risk, defined as the risk of losses due to changes in market prices, can significantly affect a portfolio's overall performance. One fundamental method employed by investors to manage market risk is through diversification.

Which of the following strategies is an example of managing market risk by diversification?

Investing in a single stock of a large technology company.

Building a portfolio that includes stocks from different sectors, such as healthcare, technology, and consumer goods.

Buying a bond with a fixed interest rate.

Hint

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