The portfolio risk that decreases as the number of securities in the portfolio increases is referred to as the __________ risk.
A) Market
B) Diversifiable
C) Non-diversifiable
D) Inefficient
E) Efficient

Question

Quizplus · Accepted Answer

Diversifiable risk, also known as unsystematic risk, is specific to a particular company or industry and can be eliminated through diversification. As the number of securities in the portfolio increases, the impact of any individual security on the overall portfolio decreases, thus reducing diversifiable risk. Market risk, also known as systematic risk, affects the entire market and cannot be eliminated through diversification. Non-diversifiable risk includes both market risk and other risks that cannot be eliminated through diversification. Inefficient and efficient are not relevant terms in this context.

The Portfolio Risk That Decreases as the Number of Securities