The only relevant risk for investors that hold diversified portfolios of securities is nondiversifiable risk.

Question

Quizplus · Accepted Answer

Nondiversifiable risk, also known as systematic risk, affects the overall market and cannot be eliminated by diversification. Therefore, it is the only relevant risk for investors holding diversified portfolios. Diversifiable risk, also known as unsystematic risk, can be reduced through diversification.

The Only Relevant Risk for Investors That Hold Diversified Portfolios