NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Modern Portfolio Theory
In Modern Portfolio Theory, the risk that can be reduced by adding more securities from different sectors to a portfolio is known as:
Unsystematic risk is the risk that diversification can reduce. It stems from company or industry specific events, which tend to offset each other across many securities. Systematic or market risk affects the whole market and remains in the portfolio despite diversification.
- ASystematic risk
- BUnsystematic riskCorrect
- CMarket risk
- DInterest rate risk
Explanation
Unsystematic (specific or diversifiable) risk arises from factors unique to a company or industry, and it falls as uncorrelated securities are added. Systematic or market risk affects all securities and cannot be removed by diversification, so the other options are wrong.
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