FINRA Series 6

Answer: B - If your cousin sold his shares in a large stock growth fund and put 50% of his money in hotel stocks and 50% in airline stocks, you can tell him that he’s less diversified than he was before. The large stock growth fund was invested in many more industries than two-industries whose returns are less likely to move together than stocks in the hotel and airline industries. His expected return will not necessarily be higher and may even be lower; he’s just exposed to more risk. The return that can be expected from an investment is based on its non-diversifiable, or market, risk. An investor cannot expect a higher return by putting all his eggs in one (or in this case, two) baskets.