The correct answer is A.

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. However, during times of stress, such as a financial crisis, the benefits of diversification can diminish. This is because during a crisis, correlations between asset classes can increase, causing the assets to move in the same direction. This convergence of risk factors can lead to significant losses, despite the diversification strategy. Therefore, while diversification can help to manage risk in normal market conditions, it may not provide the same level of protection in times of market stress.

Choice B is incorrect. While excessive leverage can increase the risk of a portfolio, it does not necessarily mean that diversification strategy will fail. Diversification is about spreading