- CFA Exams
- CFA Level I Exam
- Study Session 19. Portfolio Management (2)
- Reading 55. An Introduction to Risk Management
- Subject 4. Measuring and Modifying Risks
CFA Practice Question
The concept of insurance relies on ______.
A. diversification
B. hedging
C. specialization
Explanation: The risks of policies typically have low correlations.
User Contributed Comments 3
| User | Comment |
|---|---|
| Raph | Why hedging is not a good answer? |
| ascruggs92 | I guess this is one of those "that is the more right answer" situations. Hedging is correct, but the concept of hedging relies on the idea that diversification benefits the investor. |
| sm200 | You can hedge your risk only when the risk of one asset offsets that of the other. Since all insurance contracts have some risk that is independent of other insurance contracts it can't be termed as hedging |