Final answer:
Unsystematic risk is both company-unique and diversifiable risk, and it can be mitigated through diversification, such as investing in mutual funds. By spreading investments across various companies and industries, the negative impact of one company's performance is balanced out, adhering to the principle of not putting all your eggs in one basket.
Step-by-step explanation:
True, unsystematic risk is indeed both company-unique risk and diversifiable risk. Unsystematic risk refers to the risk associated with a specific company or industry. This type of risk can be mitigated through the process of diversification, which means investing in a variety of companies across different industries rather than focusing on a single firm. By diversifying their investment portfolio, investors can reduce the impact of a single company's poor performance on their overall investment returns.
For example, if an investor exclusively buys stocks in one technology company, they are more exposed to the risk that company faces, such as a failed product launch or a lawsuit. However, if the investor buys stocks across various sectors, such as technology, healthcare, and consumer goods, the negative impact of one sector or company performing poorly is balanced by the potential gains from others.
The principle of diversification is akin to the old proverb: "Don't put all your eggs in one basket." In a mutual fund, for instance, the fund's manager will invest in a broad range of companies, mitigating unsystematic risks and fluctuating market conditions.