Diversification is associated with which of the following risks?

Diversification is commonly understood as a strategy to manage and mitigate risk by spreading investments across various assets, industries, or markets. While diversification can effectively lower the specific risks associated with individual investments, it does not entirely eliminate risk from a portfolio.

In this context, the choice that indicates "high risk" captures the notion that, although diversification may reduce overall volatility and specific asset risk, certain market-wide risks still exist. A well-diversified portfolio is still exposed to systemic or market risk, which cannot be diversified away. Therefore, diversification can indeed be associated with high risk due to the potential for large fluctuations in market performance, economic downturns, or unforeseen global events that might affect all assets simultaneously.

The other options suggest a misunderstanding of diversification's relationship with risk. Minimal or no risk implies a false sense of security that diversification alone can provide complete safety. Moderate risk may underestimate the extent to which market conditions can impact a diversified portfolio. Thus, the choice of high risk recognizes the important balance between diversification benefits and the reality that inherent risks in the market still affect overall investment outcomes.