There are two types of diversification: a. Hedging, in which investors reduce idiosyncratic risk by making investments

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There are two types of diversification:

a. Hedging, in which investors reduce idiosyncratic risk by making investments with offsetting payoff patterns.

b. Spreading, in which investors reduce idiosyncratic risk by making investments with payoff patterns that are not perfectly correlated.

Related Book For answer-question

Managerial Economics Theory Applications and Cases

ISBN: 978-0393912777

8th edition

Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield

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Posted Date: May 09, 2021 03:19 AM

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There are two types of diversification: a. Hedging, in which investors reduce idiosyncratic risk by making investments

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Managerial Economics Theory Applications and Cases

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