Diversification eliminates unsystematic risk but does not eliminate systematic or overall market risk.

Question

Quizplus · Accepted Answer

Diversification involves investing in a variety of securities or assets to reduce the impact of unsystematic or company-specific risk. However, it cannot eliminate systematic or overall market risk, which affects the entire market or economy. Factors such as economic conditions, interest rates, and geopolitical events can still impact the performance of the overall market and affect diversified portfolios.

Diversification Eliminates Unsystematic Risk but Does Not Eliminate Systematic or Overall