The company's management is not happy with the bared risk for the expected Portfolio value return and has reached a subject matter expert to try to re-align the risk level with the management expectat

Question

Options

• ADisagree with the expert because the company should have came to you before reaching an
• BDisagree with the expert because diversification will bring more complexity, thus more risks
• CAgree with the expert because he is the expert and you should abide by his recommendations
• DAgree with the expert because diversification in a portfolio may allow for the same portfolio

• B
  6% (1)
• C
  6% (1)
• D
  88% (15)

Explanation

Portfolio diversification is a fundamental risk management principle. By spreading investments across different components (programs, projects, operations), a portfolio can achieve the same or better expected return at a lower overall risk level. This works because not all components will underperform simultaneously - losses in one area can be offset by gains in another. Disagreeing with the expert simply due to added complexity (Option B) ignores the core benefit of diversification. Option D correctly captures this principle: diversification can maintain portfolio value while reducing the risk exposure, which aligns with management's expectations.

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