alleryStart learning →Portfolio diversification is described as protecting an investor from being significantly impacted by:
ACurrency risk only
BUnsystematic risk
CSystematic risk
DInflation risk only
Answer & Solution
Correct answer: B. Unsystematic risk
1. Diversification works on only one of the two kinds of risk.
2. Systematic risk is the risk of holding the market portfolio.
3. Portfolio diversification protects you from unsystematic risk.
4. It does not remove the market risk.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 15 'Risk, Return, and Capital Market Theory'_
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