Which risk can be partially or fully diversified away as additional securities are added to a portfolio?
I. Total risk
II. Systematic risk
III. Firm-specific risk
A) I only
B) I and II only
C) I, II, and III
D) I and III

Question

Quizplus · Accepted Answer

Total risk (I) can be partially diversified away as additional securities are added to a portfolio, as can firm-specific risk (III). However, systematic risk (II) cannot be diversified away since it affects the entire market and is not specific to any one company.

Which Risk Can Be Partially or Fully Diversified Away as Additional