NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
Which type of risk is reduced by diversifying a portfolio across many unrelated stocks?
Unsystematic risk is reduced by diversification. This is risk specific to a company or sector, and losses in one holding tend to be offset by others in a diversified portfolio. Systematic risks such as market or interest rate risk affect all securities and remain.
- ASystematic risk
- BMarket risk
- CUnsystematic riskCorrect
- DInterest rate risk
Explanation
Unsystematic (company or sector specific) risk can be diversified away by holding many securities. Systematic risks such as market and interest rate risk affect all securities and cannot be eliminated by diversification.
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