All else the same, actions or events that cause ﬁrm returns to be less correlated with changes in the economy will _______ the ﬁrm's systematic risk.
A) Increase.
B) Decrease.
C) Not affect.
D) Affect (direction not determinable).
E) Increase the ﬁrm's unsystematic risk but not affect.

Question

Quizplus · Accepted Answer

Actions or events that cause firm returns to be less correlated with changes in the economy will decrease the firm's systematic risk. This is because systematic risk is the risk that cannot be diversified away and is related to the overall market or economy. By reducing the correlation between the firm's returns and changes in the economy, the firm becomes less exposed to systematic risk.

All Else the Same, Actions or Events That Cause ﬁRm