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Answer: Incorporating asset classes with low correlation to existing holdings enhances an investor's risk-return profile.
**Explanation:** - **Option A** is incorrect because systematic risk, which is tied to the broader economic system (e.g., business cycle fluctuations), cannot be mitigated through diversification alone. Diversifying across asset classes does not eliminate systematic risk. - **Option B** is incorrect because investors with below-average risk tolerance should typically allocate a below-average weight to alternative investments. Such investors often favor safer assets like government bonds and cash, while those with higher risk tolerance may allocate more to equities and alternative investments. - **Option C** is correct because adding asset classes with low correlation to an existing portfolio generally improves the risk-return trade-off, offering higher returns for a similar level of risk.
Author: LeetQuiz Editorial Team
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Which of the following statements about asset allocation is most accurate?
A
Investors should diversify their wealth across asset classes to eliminate systematic risk.
B
Investors with below-average risk tolerance should allocate an above-average weight to alternative investments.
C
Incorporating asset classes with low correlation to existing holdings enhances an investor's risk-return profile.
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