Home > Strategy > Beginner
Strategy Beginner: The Importance of Diversification

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Diversifying your stock portfolio among different companies or _______ can reduce risks that are specific to a company.
Choose wisely. There is only one correct answer.
Industries. Sometimes, a problem that hits one company in an industry can hit others in that industry.
2.
Financial advisors suggest diversifying because putting your money into different investments is often the best way to avoid losing large sums of money.
Choose wisely. There is only one correct answer.
True. Diversifying spreads risk among several investments.
3.
How can you greatly reduce unsystematic risk?
Choose wisely. There is only one correct answer.
Diversify your investments among several companies. Unsystematic risks are specific to a company. You can reduce them greatly by investing in several companies.
4.
An investor can diversify by investing in different regions of the world.
Choose wisely. There is only one correct answer.
True. One can diversify in many ways. Choosing different regions is one way.
5.
Diversification among asset classes can reduce the overall return of a portfolio because _______.
Choose wisely. There is only one correct answer.
Diversifying among different asset classes means including less-volatile assets that have lower expected earnings. Returns are averaged among all the securities in the portfolio.
6.
When a financial advisor says, "Let's talk about risk and how much you can deal with," he or she is talking about _______.
Choose wisely. There is only one correct answer.
Risk tolerance. Risk tolerance is the amount of risk with which you are comfortable.
7.
A portfolio with negatively correlated assets reduces volatility.
Choose wisely. There is only one correct answer.
True. When some assets fall in value, others will rise in value, and vice versa.