Merits and demerits of diversification strategies?

Answer 1

Diversification strategies can offer several merits, including risk reduction by spreading investments across various sectors or asset classes, which can mitigate losses if one area underperforms. They can also provide opportunities for growth by entering new markets or product lines, potentially enhancing overall returns. However, demerits include the potential for overextension, where a company may lose focus on its core competencies, leading to inefficiencies. Additionally, managing a diverse portfolio can become complex and may require more resources and expertise.