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provide an example of a unique risk that can be reduced by portfolio diversification.

provide an example of a unique risk that can be reduced by portfolio diversification.

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Answer #1

Unsystamatic Risk

Diversification means investing in various types of investment instead of investing in only one investment.

When investment is made only in one type of security then it involves high risk but when it is allocated to different types of securities this risk is reduced.

Unsystamatic risk can be reduced through diversification. It is the risk which is related to any particular company. This includes fault in management of company etc.since it is related to a particular company it can be reduced through investing in various companies.

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