Question

As randomly selected securities are combined to create a portfolio, the _________ risk of the portfolio decreases until 20 to 40 securities are included. The portion of the risk eliminated is _________ risk, while that remaining is _________ risk.

Answer 1

Answer and Explanation:

The Risk of an investment that can be minimized or removed by mixing several portfolio assets is called risk diversification.

Risk of an investment asset that can not be minimized or removed by inserting that asset is considered a non-diversifiable risk to a diversified investment portfolio.

So as per the question since the risk of the portfolio decreased from 20 to 40 the portion of the risk eliminated is diversifiable risk and the remaining would be considered as a non-diversifiable risk.