What is a primary method to diversify market/systematic risk?

Investing in assets that do not trade in the same marketplace is a primary method to diversify market or systematic risk because it focuses on reducing exposure to the overall fluctuations of the market caused by economic changes, interest rate variations, or geopolitical events. When assets are uncorrelated, their performance is likely to react differently under the same market conditions, which helps to mitigate the potential losses from one specific market downturn.

For instance, if the stock market is experiencing a decline, investments in other asset classes, such as commodities, foreign stocks, or bonds, may not be impacted in the same way or may even increase in value, providing a buffer against overall losses. This form of diversification aims to achieve more stable returns by combining various asset classes that will interact differently within the same economic environment.

The other options propose strategies that do not effectively diversify against market/systematic risk. Investing in stocks only limits exposure to a single asset class, thereby failing to mitigate risk. Focusing solely on real estate investments might diversify within a specific asset class but does not guard against overall market risk since real estate can be influenced by the same economic factors that affect stocks. Utilizing only domestic markets may further increase vulnerability to localized economic downturns, as a broader, international landscape is excluded,