______ risk is reduced as more securities are added to the portfolio.Multiple select question.MarketwideDiversifiableUnsystematicCompany-specific
Question
______ risk is reduced as more securities are added to the portfolio.Multiple select question.MarketwideDiversifiableUnsystematicCompany-specific
Solution
The risk that is reduced as more securities are added to a portfolio is Diversifiable and Unsystematic risk.
Here's why:
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Diversifiable Risk: This is also known as unsystematic risk. It is specific to a particular company or industry. By adding more securities from different companies or industries to your portfolio, you can reduce or eliminate this type of risk. This is because the negative performance of some investments will likely be offset by the positive performance of others.
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Unsystematic Risk: This is another term for diversifiable risk. It refers to the uncertainties related to specific companies or industries. This risk can be nearly eliminated through portfolio diversification.
On the other hand, Marketwide and Company-specific risks cannot be eliminated or reduced through diversification.
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Marketwide Risk: This is also known as systematic risk. It affects all companies and securities in the market and cannot be eliminated through diversification. Examples include interest rate changes, inflation, political instability, changes in economic policies, etc.
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Company-specific Risk: This is a type of unsystematic risk that is associated with individual companies. While it can be reduced through diversification, it cannot be completely eliminated as each company in a portfolio will still carry its own set of risks.
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