ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -To eliminate the majority of diversifiable risk requires a portfolio to contain at least 40 diverse securities.

Detailed explanation-2: -Firm specific risk, also known as idiosyncratic risk or unsystematic risk, is the only risk that can been diversified away by adding securities to a portfolio.

Detailed explanation-3: -Unsystematic risk, or company-specific risk, is a risk associated with a particular investment. Unsystematic risk can be mitigated through diversification, and so is also known as diversifiable risk.

Detailed explanation-4: -Market risk, also called systematic risk, affects all securities. Market risk cannot be overcome through portfolio diversification. Company-specific risks can be eliminated by holding many different securities. Investors should consider the total risk of their portfolio as a whole.

Detailed explanation-5: -Unsystematic risk (also called diversifiable risk) is risk that is specific to a company. This type of risk could include dramatic events such as a strike, a natural disaster such as a fire, or something as simple as slumping sales. Two common sources of unsystematic risk are business risk and financial risk.