Diversified investors should 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

Diversifiable risk, also known as unsystematic risk, can be mitigated through the process of diversification—holding a wide variety of investments in a portfolio. Nondiversifiable risk, or systematic risk, affects the entire market and cannot be eliminated through diversification. Therefore, diversified investors focus on nondiversifiable risk, as diversification can eliminate or greatly reduce diversifiable risk.

Diversified Investors Should Be Concerned Solely with Nondiversifiable Risk Because