Shawn determines that if Lexall Corporation has high revenues,then Waters Corporation will have low revenues,and that if Lexall Corporation has low revenues,then Waters Corporation will have high revenues.Shawn buys stock in both corporations.
A)He has reduced firm-specific risk but not market risk.
B)He has reduced market risk,but not firm-specific risk.
C)He had reduce both firm-specific risk and market risk.
D)He has reduced neither firm-specific risk nor market risk.

Question

Quizplus · Accepted Answer

By investing in both corporations, Shawn is diversifying his portfolio, which reduces firm-specific risk because the performance of one company is offset by the other. However, market risk, which affects all companies, is not reduced by this strategy.

Shawn Determines That If Lexall Corporation Has High Revenues,then Waters