The inclusion of thirty highly diverse securities in a portfolio eliminates the bulk of the ___ risk.
A) Market.
B) Unique.
C) Unexpected.
D) Expected.
E) Inﬂation.

Question

Quizplus · Accepted Answer

The inclusion of thirty highly diverse securities in a portfolio eliminates the bulk of the unique risk. Unique risk, also known as company-specific risk, is the risk that is inherent in an individual stock or security, and cannot be diversified away by holding a larger number of securities. By including thirty highly diverse securities, the portfolio manager can effectively diversify away the unique risk associated with individual securities. Market risk, unexpected risk, expected risk, and inflation risk are not eliminated by diversification.

The Inclusion of Thirty Highly Diverse Securities in a Portfolio