If you build a large enough portfolio,you can diversify away all ________ risk,but you will be left with ________ risk.

Question

Quizplus · Accepted Answer

Diversifiable risk is also known as unsystematic or idiosyncratic risk as it is specific to a particular company or industry. This type of risk can be diversified away by having a large enough portfolio with a variety of stocks. However, systematic risk is the risk that is inherent in the entire market or economy and cannot be diversified away, no matter how many stocks are included in the portfolio. Therefore, option B is the correct answer as it correctly identifies the remaining risk in the portfolio after diversifying away diversifiable risk.

If You Build a Large Enough Portfolio,you Can Diversify Away