Knowledge Tree
Relations (1)
related 3.00 — strongly supporting 7 facts
Diversification is a risk management strategy specifically employed to mitigate or eliminate unsystematic risk, as described in [1], [2], and [3]. By spreading investments across various assets, diversification reduces this company-specific risk while leaving systematic risk unaffected, as noted in [4], [5], [6], and [7].
Facts (7)
Sources
Topic 2: The Risk and Return Trade Off in Financial Decision Making oercollective.caul.edu.au 3 facts
claimDiversification reduces unsystematic risk in a portfolio by including assets with low or negative correlations, though systematic risk remains.
claimPortfolio risk is determined by the variance and covariance of returns among assets, and diversification reduces unsystematic risk while systematic risk remains.
claimInvestors should not expect to be rewarded for taking on unsystematic risk because this type of risk can be reduced or eliminated through diversification.
The Risk-Return Tradeoff: Understanding Investment Goals for Long ... m1.com 2 facts
claimDiversification is a risk management tool that involves spreading investments across various assets, sectors, geographic regions, and company sizes to potentially reduce unsystematic risk.
claimDiversification can potentially reduce unsystematic risk, which is the risk specific to individual companies or sectors, though it cannot eliminate all risk or guarantee a profit or protection against loss in declining markets.