The greatest reduction in risk in a portfolio typically occurs when the number of stocks is increased from a very low number to a somewhat moderate number. In this case, going from 1 to 10 stocks (option a) will generally provide the greatest reduction in risk compared to moving from 10 to 20 or from 20 to 30 stocks.
This is because the initial increase from a single stock to multiple stocks allows for greater diversification, which reduces the unsystematic risk associated with individual stocks. Once you already have a well-diversified portfolio (for example, increasing from 10 to 20 or from 20 to 30 stocks), the incremental benefit of adding more stocks diminishes.
Therefore, the answer is: a. increasing the number of stocks in the portfolio from 1 to 10
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