Strategy Beginner: The Importance of Diversification

Test your knowledge

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

0%
Keep studying!

Get a certificate for this quiz
Enter your name to generate a certificate that you can save or print immediately. Optionally, add your email address to have a copy of the certificate emailed to you.


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.
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.
3.
Risk tolerance is the amount of risk with which you are comfortable.
Choose wisely. There is only one correct answer.
True. It determines your choices of investments, among many other things.
4.
The risk of the company in which you invest being destroyed by a passing tornado is an example of _______ risk.
Choose wisely. There is only one correct answer.
Unsystematic. A tornado is a natural disaster that is unlikely to affect all industries; hence, it is an unsystematic risk.
5.
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.
6.
A fall in price of one security in a diversified portfolio may be offset by an increase in price of another.
Choose wisely. There is only one correct answer.
True. Problems in one industry may lead people to seek the products or services of another in your portfolio.
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.