The correct answer is: Markowitz diversification.
Markowitz diversification is a strategy that seeks to reduce risk by investing in a variety of assets that have low correlations with each other. This means that when one asset goes down in value, another asset is likely to go up in value, offsetting the losses.
Random diversification is a strategy that seeks to reduce risk by investing in a large number of assets. This is based on the idea that if you invest in enough assets, some of them are likely to go up in value even if the overall market is going down. However, random diversification does not take into account the interrelationships between asset returns.
Correlating diversification is a strategy that seeks to reduce risk by investing in assets that have high correlations with each other. This is based on the idea that if all of your assets go up or down in value together, you will not be as exposed to market risk. However, correlating diversification does not take into account the risk of individual assets.
Friedman diversification is a strategy that seeks to reduce risk by investing in assets that have low correlations with each other and high expected returns. This is based on the idea that if you can find assets that have low correlations with each other and high expected returns, you can reduce your risk while still earning a good return.
In conclusion, Markowitz diversification is the best strategy for reducing risk because it takes into account the interrelationships between asset returns.