Diversification reduces the risk of a portfolio because different investments can rise and fall independently of each other.
- Divide your money among a number of assets to achieve diversification. Because different investments can rise and fall independently of one another, diversification helps to lower risk.
- The pairings of these assets more often than not will cancel out each other's volatility, hence lowering risk.
What is diversification and what does it reduce in a portfolio?
- Spreading your investments out will limit your exposure to any one form of asset. This approach is known as diversification.
- This routine is intended to gradually lessen the volatility of your portfolio.
What is diversification of risk?
The process of investing across various markets and subcategories within a single portfolio is known as risk diversification.
Learn more about risk diversification
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