The diversifiable risk, also known as unsystematic risk, is the risk that is unique to a particular company or industry. This type of risk can be reduced through diversification.

Now, let's look at the three ratios mentioned:

1. Sharpe Ratio: This ratio measures the average return earned in excess of the risk-free rate per unit of total risk or volatility. It considers both systematic and unsystematic risk. Therefore, an increase in diversifiable risk would affect the Sharpe ratio.

2. Treynor Ratio: This ratio measures the excess return per unit of risk, but unlike the Sharpe ratio, it only considers systematic risk. Therefore, an increase in diversifiable risk would not affect the Treynor ratio.

3. Jensen's Alpha: This is a risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This measure also only considers systematic risk. Therefore, an increase in diversifiable risk would not affect Jensen's Alpha.

So, the correct answer to your question would be b. Sharpe ratio only.

Question

The diversifiable risk, also known as unsystematic risk, is the risk that is unique to a particular company or industry. This type of risk can be reduced through diversification.

Now, let's look at the three ratios mentioned:

1. Sharpe Ratio: This ratio measures the average return earned in excess of the risk-free rate per unit of total risk or volatility. It considers both systematic and unsystematic risk. Therefore, an increase in diversifiable risk would affect the Sharpe ratio.

2. Treynor Ratio: This ratio measures the excess return per unit of risk, but unlike the Sharpe ratio, it only considers systematic risk. Therefore, an increase in diversifiable risk would not affect the Treynor ratio.

3. Jensen's Alpha: This is a risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This measure also only considers systematic risk. Therefore, an increase in diversifiable risk would not affect Jensen's Alpha.

So, the correct answer to your question would be b. Sharpe ratio only.

Knowee AI · Accepted Answer

The diversifiable risk, also known as unsystematic risk, is the risk that is unique to a particular company or industry. This type of risk can be reduced through diversification.

Now, let's look at the three ratios mentioned:

1. Sharpe Ratio: This ratio measures the average return earned in excess of the risk-free rate per unit of total risk or volatility. It considers both systematic and unsystematic risk. Therefore, an increase in diversifiable risk would affect the Sharpe ratio.

2. Treynor Ratio: This ratio measures the excess return per unit of risk, but unlike the Sharpe ratio, it only considers systematic risk. Therefore, an increase in diversifiable risk would not affect the Treynor ratio.

3. Jensen's Alpha: This is a risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This measure also only considers systematic risk. Therefore, an increase in diversifiable risk would not affect Jensen's Alpha.

So, the correct answer to your question would be b. Sharpe ratio only.

If an investment 's diversifiable risk increases which of the following ratio/ratios will be affected by this change?Question 65Answera.Treynor ratio and Jensen's Alpha onlyb.Sharpe ratio onlyc.. All of the above (Sharpe, Treynor and Jensen's Alpha)

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