Diversified investors should be concerned solely with nondiversifiable risk because they can easily create a portfolio of assets that will eliminate all,or virtually all,diversifiable risk.

Question

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Diversifiable risk, also known as unsystematic risk, can be eliminated by creating a well-diversified portfolio of assets. Nondiversifiable risk, also known as systematic risk, is related to market factors such as interest rates, inflation, and geopolitical events, and cannot be eliminated through diversification. As diversified investors are already protected against diversifiable risk, they should focus solely on managing nondiversifiable risk.

Diversified Investors Should Be Concerned Solely with Nondiversifiable Risk Because