CIMA P3 Syllabus A. Enterprise risk - Diversification of Risks - Notes ^{5 / 10}

Two risks that vary together. If positive correlation exists, the risks will increase or decrease together. If negative correlation exists, one risk will increase as the other decreases and vice versa.

Related risks are:

Risks that are connected because the causes of the risk are the same.

Diversification of risk involves:

Offsetting risks that are negatively correlated to balance their impact and likelihood regardless of the circumstances.