ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -Unsystematic risk refers to the risks inherent in a specific company or an industry. It can potentially be avoided through diversification. Beta measures systematic risk only and not unsystematic risk. For example, positive macro events such as economic booms are likely to result in greater gains for all companies.
Detailed explanation-2: -Unsystematic risk can be mitigated through diversification, and so is also known as diversifiable risk. Once diversified, investors are still subject to market-wide systematic risk. Total risk is unsystematic risk plus systematic risk.
Detailed explanation-3: -Beta () is a measure of the volatility-or systematic risk-of a security or portfolio compared to the market as a whole (usually the S&P 500).
Detailed explanation-4: -How to Calculate Unsystematic Risk? Calculating the unsystematic risk is simple and is measured by mitigation of systematic risk and this mitigation happens when you diversify your investment portfolio. As we discussed above, systematic risk is the one which depends on macroeconomic factors which are market factors.