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If an investor buys at least 50 stocks from different industries, he or she can, through...

If an investor buys at least 50 stocks from different industries, he or she can, through diversification, eliminate all of the company-specific risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all market (systematic) risk.

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Answer #1

Answer: The main purpose of diversification is to reduce risk by allocating investments among various financial assets. By investing in industries who have low correlation with each other we can systematically reduce the unsystematic risk(company specific) but systematic risk is not related to a particular industry or Company.

Systematic risk include Inflation, exchange rates, Political instability, war and interest rates. These type of risk can not be eliminated by diversifying as these risks are not in anyone's control and all companies will get effected through these.

That's why it is impossible to eliminate all market risk

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