The asset-specific idiosyncratic risk is generally ignored when making decisions concerning the additional amount of risk involved when acquiring an additional asset to be added to an already well-diversified portfolio of assets.

Question

Quizplus · Accepted Answer

In a well-diversified portfolio, asset-specific idiosyncratic risks are largely eliminated through diversification, so the focus shifts to the asset's contribution to the overall portfolio's systematic risk.

The Asset-Specific Idiosyncratic Risk Is Generally Ignored When Making Decisions