………… could be eliminated by portfolio diversification.

Question

BlackTom AI · Accepted Answer

In this question, the blank is asking which type of risk could be eliminated by portfolio diversification.
Option: Unsystematic risk. This type of risk is specific to a single asset or a small group of assets, such as company-level or industry-specific events. Diversification works by spreading investments across many assets, which tends to offset these idiosyncratic risks because not all holdings are affected in the same way at the same time.
Why diversification helps here: when you invest in a broad mix of securities that are not perfectly correlated, the negative events impacting one asset are unlikely to impact all assets to the same degree. Over many holdings, the unique, asset-specific risks tend to cancel each other out, reducing the portfolio’s overall unsystematic risk.
Why this option is correct conceptually: the core idea behind portfolio diversification is precisely to eliminate or greatly reduce risks that are unique to individual securities, rather than market-wide risks that affect almost all assets.
Why other ideas (if any were present) would be insufficient: while systematic (market-wide) risk cannot be eliminated by diversification, it remains regardless of how many different assets you hold. However, since that is not the focus of this specific item, the relevant concept here is that unsystematic risk is the one mitigated through diversification.
In summary, the statement aligns with the fundamental distinction between unsystematic (diversifiable) and systematic (non-diversifiable) risk, highlighting the former as the type that can be reduced through diversification.

25400 金融知识 - 2025 年春季 🔴 课堂测验练习题 2

………… could be eliminated by portfolio diversification.

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25400 金融知识 - 2025 年春季 🔴 课堂测验练习题 2

………… could be eliminated by portfolio diversification.

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类似问题

You can best reduce investment risk by investing in

Holding a portfolio of 30 selected stocks eliminates all risk for an investor.

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One of the advantages of investing in a managed investment fund is that the investors can:

Ms Brown is reviewing her investment portfolio of Australian shares with her advisor. Which of the following statements best explains why investors are typically not compensated for taking on unsystematic risk?

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Part 1Which of the following is a benefit to an individual purchasing a mutual fund? Part 2 A. An opportunity to free ride B. Diversification C. Increased risk D. Higher transaction costs