NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
Which of the following best describes systematic risk of a portfolio of equity shares?
Systematic risk is market-wide risk that cannot be eliminated by diversification. It stems from factors such as interest rates, inflation and the economy, which affect all securities. Only company-specific or unsystematic risk can be reduced by holding a diversified portfolio.
- ARisk that can be eliminated fully by holding many stocks
- BMarket-wide risk that cannot be removed by diversificationCorrect
- CRisk specific to a single company's management
- DRisk arising only from a company's debt default
Explanation
Systematic risk arises from market-wide factors such as interest rates, inflation and economic conditions, and affects all securities. Diversification reduces unsystematic (company-specific) risk but cannot remove systematic risk.
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