If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.

Question

Quizplus · Accepted Answer

Diversification can help reduce unsystematic (diversifiable) risk, which is specific to individual stocks or sectors, but it cannot eliminate systematic (market) risk, which affects the entire market.

If an Investor Buys Enough Stocks, He or She Can