Which term describes the practice of spreading risk by having a variety of products and investments?

Which term describes the practice of spreading risk by having a variety of products and investments?

• A. Diversification
• B. Concentration
• C. Specialization
• D. Consolidation

Answer: (A)

Diversification means spreading risk by having a variety of products and investments. The idea is not to put all resources into one thing, because when one area struggles, others can balance the impact. In investing, a mix of stocks, bonds, and cash tends to soften losses if one market falls, since they don’t all move the same way at the same time. In business, offering several product lines or serving different markets reduces the chance that a single failure will hurt the entire company. This approach lowers unsystematic risk—the risk tied to a specific asset or product—while aiming for steadier overall performance. The other terms describe actions that actually concentrate risk or shift ownership, which doesn’t spread risk in the same way.

Diversification means spreading risk by having a variety of products and investments. The idea is not to put all resources into one thing, because when one area struggles, others can balance the impact. In investing, a mix of stocks, bonds, and cash tends to soften losses if one market falls, since they don’t all move the same way at the same time. In business, offering several product lines or serving different markets reduces the chance that a single failure will hurt the entire company. This approach lowers unsystematic risk—the risk tied to a specific asset or product—while aiming for steadier overall performance. The other terms describe actions that actually concentrate risk or shift ownership, which doesn’t spread risk in the same way.