Knowledge Tree
Relations (1)
related 2.32 — strongly supporting 4 facts
Diversification is related to systematic risk because it is the strategy used to mitigate unsystematic risk, while systematic risk is explicitly defined as the portion of risk that cannot be reduced through this process as described in [1], [2], [3], and [4].
Facts (4)
Sources
Topic 2: The Risk and Return Trade Off in Financial Decision Making oercollective.caul.edu.au 2 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.
Chapter 8 – Risk and Return – Fundamentals of Finance pressbooks.pub 2 facts
claimMarket risk, also known as systematic or non-diversifiable risk, is the risk that affects the entire market or economy and cannot be reduced by diversification because it impacts all securities to some extent.
claimEconomic or market risks are systematic risks that stem from overall economic conditions, affect all securities to some extent, and cannot be mitigated through diversification.