The risk that can be diversified away in a portfolio is referred to as ___________. I) diversifiable risk
II) unique risk
III) systematic risk
IV) firm-specific risk

Question

Quizplus · Accepted Answer

Diversifiable risk, also known as unsystematic risk, can be eliminated through diversification, meaning that spreading investments across different assets can significantly reduce the risk of the portfolio. Unique risk, firm-specific risk, and specific risks related to a particular security are all examples of diversifiable risk. Systematic risk, on the other hand, cannot be diversified away because it is inherent in the market and affects all investments equally. Therefore, the correct options are I, II, and IV.

The Risk That Can Be Diversified Away in a Portfolio