Diversiﬁable risks can be essentially eliminated by investing in several unrelated securities.

Question

Quizplus · Accepted Answer

Diversification is the process of investing in a variety of assets in order to reduce the overall risk of a portfolio. By investing in several unrelated securities, an investor can essentially eliminate diversifiable risks, which are risks that are specific to a particular company or industry. However, non-diversifiable risks, such as market risk and inflation risk, cannot be eliminated through diversification.

Diversiﬁable Risks Can Be Essentially Eliminated by Investing in Several