Diversification refers to the "reduction of the stand-alone risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio."
This is because diversification is a business strategy in which an investor diversifies his assets in various industries or categories to reduce his loss in situations where one industry or category suffers business loss.
Also, Standard deviation in diversification is used to measure the rate of risk of an asset.
It measures the length at which asset movement spread in a given period in terms of value.
Hence, in this case, it is concluded that the correct answer is option B.
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