Any investor (or firm) must be concerned solely with nondiversifiable risk because it can create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.

Question

Quizplus · Accepted Answer

Nondiversifiable risk, also known as systematic risk or market risk, is the risk that affects the entire market or a particular segment, such as changes in interest rates, economic downturns, natural disasters, or geopolitical events. This type of risk cannot be diversified away because it affects all assets in the same way. Diversifiable risk, on the other hand, is also known as unsystematic risk or company-specific risk, and can be reduced or eliminated by holding a diversified portfolio of assets. Therefore, an investor or firm should primarily focus on nondiversifiable risk when making investment decisions.

Any Investor (Or Firm) Must Be Concerned Solely with Nondiversifiable