Do you agree or disagree with the statement below, why or why not? please share an example
Question:
Do you agree or disagree with the statement below, why or why not? please share an example of Diversifiable and Nondiversifiable Risks in your response
some risks are diversifiable because they are specific to certain industries or assets. The principle of diversification tells us that spreading an investment across many assists will eliminate some of the risk. If an investor owns stocks in two different industries, a negative impact in one of the stocks may not affect the other. On the other hand, some risks are nondiversifiable because there is a minimum level of risk that cannot be eliminated by diversifying and it could potentially affect the whole market. There are many reasons that this can happen like economic downturns, interest rate changes, or even something like the COVID-19 pandemic. It does not follow that an investor can completely control the level of systematic risk in a portfolio. Diversification can help control risks specific to individuals, but it does not mean investors can control overall market risks. Investors can try to manage risk through different strategies, but full control is not possible.
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston