Final answer:
The correct statement is that unanticipated events affecting a single industry are classified as diversifiable risks
(option c), which can be mitigated through diversification, a strategy that spreads investments across various industries. Diversification can cancel out extreme value fluctuations in a portfolio but cannot eliminate market-wide systematic risks.
Step-by-step explanation:
The correct statement among the options provided is: Unanticipated events affecting a single industry are classified as diversifiable risks. This implies that such risks can be mitigated through diversification, which involves spreading investments across various industries to reduce the impact of any single event or industry slump on the overall portfolio.
Diversification is a risk management strategy that involves buying stocks or bonds from a wide range of companies. It follows the old proverb: "Don't put all your eggs in one basket." By diversifying, investors can cancel out extreme increases and decreases in value due to the varying performances of different companies. However, it should be noted that diversification does not eliminate all types of risk.
There are two types of risks associated with investments: systematic and unsystematic risk. Systematic risk, also known as market risk, affects the entire market and cannot be diversified away, while unsystematic risk can be reduced through diversification. An example of systematic risk is an economic recession, while an example of unsystematic risk could be the poor performance of a single company due to managerial decisions.