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 (also known as unsystematic or specific risk) can be reduced through diversification, while systematic risk (also known as market risk or non-diversifiable risk) cannot be eliminated through diversification. Therefore, as the portfolio grows larger and more diversified, the unsystematic risk decreases but the systematic risk remains.

If You Build a Large Enough Portfolio, You Can Diversify