Which of the following is a way by which risk can be diversified?Multiple choice question.By creating a broader portfolio of products through innovationBy taking up new ventures that predict high returnsBy manufacturing only those products in which a firm has a competitive advantageBy avoiding projects that are risky

The way by which risk can be diversified from the options provided is "By creating a broader portfolio of products through innovation".

Here's why:

1. Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

2. By creating a broader portfolio of products through innovation, a firm can spread its risk across different products. This means that if one product fails or does not perform as expected, the firm can rely on the other products in its portfolio to compensate for the loss. This is the essence of diversification.

3. The other options do not necessarily lead to diversification. Taking up new ventures that predict high returns can actually increase risk if these ventures do not perform as expected. Manufacturing only those products in which a firm has a competitive advantage can limit the firm's exposure to different markets and opportunities, which is the opposite of diversification. Avoiding projects that are risky does not necessarily lead to diversification, as it can also limit the firm's exposure to potential opportunities.