When a portfolio is diversified, the type of risk that is reduced is unsystematic risk. Here's why: 1. Unsystematic risk, also known as specific risk, is the risk associated with a specific company or industry. This risk can be mitigated through diversification, which involves spreading investments across various assets. 2. Diversification reduces the impact of any one investment's performance on the overall portfolio. If one investment performs poorly, it's offset by other investments that perform well. 3. Systematic risk, on the other hand, is the risk that affects all companies and industries. It's caused by factors such as inflation rates, exchange rates, political instability, war, and changes in interest rates. Diversification cannot mitigate this type of risk because it affects the entire market. So, in conclusion, diversification reduces unsystematic risk.

When a portfolio is diversified, what type of risk is reduced?Group of answer choicesunsystematic risksystematic risk

Question

When a portfolio is diversified, what type of risk is reduced?Group of answer choicesunsystematic risksystematic risk

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Solution 1

When a portfolio is diversified, the type of risk that is reduced is unsystematic risk.

Here's why:

Unsystematic risk, also known as specific risk, is the risk associated with a specific company or industry. This risk can be mitigated through diversification, which involves spreading investments across various assets.
Diversification reduces the impact of any one investment's performance on the overall portfolio. If one investment performs poorly, it's offset by other investments that perform well.
Systematic risk, on the other hand, is the risk that affects all companies and industries. It's caused by factors such as inflation rates, exchange rates, political instability, war, and changes in interest rates. Diversification cannot mitigate this type of risk because it affects the entire market.

So, in conclusion, diversification reduces unsystematic risk.

This problem has been solved

Solution 2

When a portfolio is diversified, the type of risk that is reduced is unsystematic risk.

Here's why:

Unsystematic risk, also known as specific risk, is the risk associated with a specific company or industry. This risk can be mitigated through diversification, which is the process of spreading investments across various securities to reduce exposure to any one particular asset.
Diversification reduces the impact of any one security's performance on the overall portfolio. If one security performs poorly, the loss can potentially be offset by the performance of other securities in the portfolio.
On the other hand, systematic risk, also known as market risk, affects the entire market and cannot be reduced through diversification. This type of risk is influenced by

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Solution 3

When a portfolio is diversified, the type of risk that is reduced is unsystematic risk.

Here's why:

Unsystematic risk, also known as specific risk, is the risk associated with a specific company or industry. This risk can be mitigated through diversification, which involves spreading investments across various assets.
Diversification reduces the impact of any one investment's performance on the overall portfolio. If one

This problem has been solved

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