Since diversification reduces unsystematic risk, the relevant measure of risk for an investor who holds a well-diversified portfolio is:
A) Market risk.
B) Company-specific risk.
C) Total risk.
D) Residual risk.
E) None of the above.

Question

Quizplus · Accepted Answer

Market risk is the relevant measure of risk for an investor holding a well-diversified portfolio because diversification minimizes unsystematic (company-specific) risk, leaving systematic (market) risk as the primary concern.

Since Diversification Reduces Unsystematic Risk, the Relevant Measure of Risk