Final answer:
The statement is false; diversifiable risk is not highly correlated and can be mitigated through diversification, which involves spreading investments to lessen the impact of an individual investment's performance on the entire portfolio.
Step-by-step explanation:
False. Diversifiable risk is not highly correlated and can indeed be managed through diversification or spread of risk. Diversifiable risk, also known as unsystematic risk, refers to the risk associated with individual stocks or sectors. By spreading investments across various sectors and asset classes, investors can reduce the impact of any one investment's poor performance on their overall portfolio.
This is because the negative performance of some investments can be offset by the positive performance of others, balancing out the risk. This strategy is evident in the creation of mutual funds, where a fund manager pools money from many investors to invest in a diversified portfolio of stocks or bonds. Diversification is a key technique used to minimize diversifiable risk.
By investing in a wide range of companies or industries, the investor can reduce the impact of any one company's poor performance on their overall portfolio. Diversification helps to cancel out extreme increases and decreases in the value of investments, effectively managing diversifiable risk.