Diversified portfolio-risk aversion and risk diversification

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Reference no: EM131625415

Reading about portfolio composition and the importance of putting together a diversified portfolio, risk aversion, risk diversification, etc. However, the book states that simply putting together stocks with high correlation, regardless of number of stocks, will not achieve desired diversification, because you would still be exposed to similar industry risk, despite owning companies that are not similar at all.

The question is, Is this assumption correct when it comes to creating a portfolio with companies in the same industry, such as the financial industry? Can you achieve a diversified portfolio by holding companies in the same industry, the financial industry? Why or Why not?

Reference no: EM131625415

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