Which statement about risk is true?
A)An investor can eliminate virtually all market risk if he or she holds a very large and well-diversified portfolio of stocks.
B)The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio.
C)It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock.
D)An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.

Question

Quizplus · Accepted Answer

Diversifiable risk, also known as unsystematic risk, can be eliminated through diversification. By holding a large, well-diversified portfolio of stocks, an investor can eliminate the risk associated with individual stocks or industries. However, non-diversifiable risk, also known as systematic risk or market risk, cannot be eliminated through diversification as it affects the entire market. Therefore, option D is the correct statement. Options A, B, and C are incorrect as they either provide incorrect information or contradict the principles of diversification.

Which Statement About Risk Is True