Which of the following statements is true?
A)In a well-diversified portfolio, unsystematic risk can be largely diversified away, leaving behind systematic risk.
B)In a well-diversified portfolio, systematic risk can be largely diversified away, leaving behind unsystematic risk.
C)In a well-diversified portfolio, both systematic and unsystematic risk can be largely diversified away.
D)No matter how well diversified a portfolio is, unsystematic and systematic risk always exist.

Question

Quizplus · Accepted Answer

Systematic risk is the risk inherent to the entire market or market segment, while unsystematic risk is the risk that affects an individual company or industry. In a well-diversified portfolio, unsystematic risk can be reduced or diversified away by investing in a variety of companies and industries, but systematic risk cannot be eliminated, as it is inherent to the entire market or market segment. Therefore, the correct statement is that in a well-diversified portfolio, systematic risk can be largely diversified away, leaving behind unsystematic risk.

Which of the Following Statements Is True