NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return
Which risk is NOT eliminated by holding a well-diversified portfolio of stocks?
Market risk, also called systematic risk, cannot be eliminated by diversification because it affects all securities, arising from factors such as interest rates, inflation and economic cycles. Company-specific, unsystematic and business-specific risks can be reduced by holding many different securities.
- ACompany-specific risk
- BUnsystematic risk
- CMarket riskCorrect
- DBusiness-specific risk
Explanation
Diversification removes unsystematic (company or sector specific) risk. Market risk, also called systematic risk, affects all securities and cannot be diversified away. The other options are all names for diversifiable risk.
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