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An investor is bullish on the technology sector and heavily invests in microchip companies. Impactful regulatory changes are announced that will negatively affect microchip manufacturing. In order to mitigate the risk to his portfolio, the investor should:
Correct Answer: A
The announcement of negative regulatory changes introducesunsystematic risk, specific to the technology sector. Diversification into unrelated sectors can reduce exposure to this risk. * A is correctbecause uncorrelated holdings reduce portfolio risk. * Bis incorrect because adding more microchip companies increases exposure to sector-specific risk. * Cdoes not address the core issue of over-concentration. * Dis the opposite of mitigating risk.