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What investment is more likely to reduce risk, a pro basketball team or a pharmaceutical company?

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The owner a pro football team plans to diversify by purchasing shares in either a company that owns a pro basketball team or a pharmaceutical company. Which of these two investments are more likely to reduce the overall risk the owner will face? Why?

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Solution Summary

The solution explains how diversification works in portfolio management in 156 words.

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Risk is reduced when a portfolio is invested in different unrelated industry. The diversification in the portfolio is of primary importance as low trends in one can be equally by high in another.

Owning a pro football team ...

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