Asked by: Dmitrijs Mitskevich
business and finance financial industry

Which of the following is an advantage of diversification?

Last Updated: 29th June, 2020

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Three key advantages of diversification include: Minimising risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment.

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Accordingly, what are the advantages of diversification?

Three key advantages of diversification include: Minimising risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment.

what are the benefits of a well diversified portfolio quizlet? The benefits of diversification are that of adding more stocks. Diversification shows that unsystematic risk falls as we add more stocks, but systematic risk is the lower boundary, and we cannot eliminate it, no matter how many stocks we add to our portfolio.

In this manner, what are the major advantages and disadvantages of diversification?

Disadvantages Of Diversification However, a diversified entity will lose out due to having limited investment in the specific segment. Therefore, diversification limits the growth opportunities for an entity. Diversifying into a new market segment will demand new skill sets.

Which of the following investments are included in a diversified portfolio?

Include These Six Asset Classes to Diversify Your Portfolio

  • U.S. stocks. Different sized companies should be included.
  • U.S. fixed income. The safest are U.S. Treasurys and savings bonds.
  • Foreign stocks. These include companies from both developed and emerging markets.
  • Foreign fixed income.
  • Commodities.

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A company may decide to diversify its activities by expanding into markets or products that are related to its current business. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. Another strategy is conglomerate diversification.

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What is the purpose of diversification?

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What are the types of diversification?

The three types of diversification strategies include the concentric, horizontal and conglomerate. Diversification is a method of risk management that involves the change and implementation of different investments stated in a specific portfolio.

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What are the three types of diversification?

There are three types of diversification: concentric, horizontal, and conglomerate.
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What is diversification growth?

Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.

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What is the diversification rule?

In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.

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What is integration strategy?

? Integration Strategy also called Management Control Strategy . ? Integration strategies allow a firm to gain control over distributors, suppliers, and/or competitors.

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Is diversification a good strategy?

Yes, diversification is a good strategy and important for investment. The main aim of diversification is to minimize the risk by investing in range of products. It helps in reducing the market volatility. Also, diversification is important in both, short term and long term investments.

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What is the risk of diversification?

Risk diversification consists of spreading risk out into numerous areas to ensure that the potential negative effects of exposure to any one variable are limited. More info. FX Spot Transactions.

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What are the challenges of diversification?

Disadvantages of Diversification in Investing
  • Reduces Quality. There are only so many quality companies and even less that are priced at levels that provide a margin of safety.
  • Too Complicated.
  • Indexing.
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  • Bad Investment Vehicles.
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What is product diversification?

Product diversification is the practice of expanding the original market for a product. This strategy is used to increase the sales associated with an existing product line, which is especially useful for a business that has been experiencing stagnant or declining sales.

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What are the benefits of diversification of business?

  • Diversification. A company can diversify in several ways, including acquiring a new business, adding a new market segment or selling new products or services.
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What is an advantage of unrelated diversification?

Advantages: The unrelated diversification which is carefully developed and undertaken only after thorough analysis of the environment and the company´s own resources usually brings very good financial results. However, in all cases it should be a low risk investment with a potential for high returns.

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What is concentric diversification?

concentric diversification. A type of diversification in which a company acquires or develops new products or services (closely related to its core business or technology) to enter one or more new markets.

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What are the advantages and disadvantages of selling a combination of stocks and bonds?

Advantages of selling a combination of stocks and bonds are that there will be diversified portfolio and risk will be hedged. Disadvantages of selling a combination of stocks and bonds are that there will be high transaction cost involved in selling both.

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How can companies benefit from related diversification?

Diversification into related product markets can enable a company to reduce systematic risks. However, diversifying by acquiring a company in a related product market can enable a company to reduce its technological, production, or marketing risks.

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How does diversification positively and negatively affect risk?

Diversification strives to smooth out unsystematic risk events in a portfolio, so the positive performance of some investments neutralizes the negative performance of others. The investing in more securities generates further diversification benefits, albeit at a drastically smaller rate.

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What is unsystematic risk quizlet?

The uncertainty that an investment will deliver its expected return—mathematically expressed as standard deviation for a security. Total risk consists of the sum of unsystematic risk and systematic risk. The major types of unsystematic risk are business risk, financial risk, and country risk.

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Why is diversification important to have in investments quizlet?

It is also important to diversify the investments because if the investor was to put all their money in one company, it could fail and then they would lose their money. The benefit of saving in an account that has a compound interest because it'll help the investor to earn interest.