What level of diversification leads to the highest levels of performance?Multiple choice question.moderatelowhighvery low

Answering the Question

When considering the question of diversification and its impact on performance, it's important to understand that there is a relationship between diversification and risk.

1. Low Diversification: This usually means investing in a small number of assets or sectors, which can lead to high risk. If one investment fails, it can significantly impact overall performance.

2. Moderate Diversification: This approach helps in spreading out risk while still allowing for potential high returns from selected investments.

3. High Diversification: While this reduces risk even further, it can lead to diminishing returns since the performance of any single investment has less impact on the overall portfolio.

4. Very Low Diversification: This is akin to very low diversification, which similarly mirrors the high risk of low diversification.

Conclusion

In general, moderate diversification tends to lead to the highest levels of performance as it balances risk and return effectively. Therefore, the answer to the question is moderate.