Unsystematic risk can be diversified away in a portfolio.

Question

Quizplus · Accepted Answer

Unsystematic risk, also known as specific risk or diversifiable risk, can be reduced or eliminated through diversification. By holding a diversified portfolio of assets, investors can spread their investment across different industries, markets, and securities, reducing their exposure to the risks associated with any individual asset or industry. This means that unsystematic risk can be diversifiable and does not necessarily represent a systematic risk that affects the entire market or economy, which cannot be diversified away.

Unsystematic Risk Can Be Diversified Away in a Portfolio