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Diversification primarily reduces unsystematic risk, which is the risk associated with individual assets or specific sectors. By spreading investments across a variety of assets, such as stocks, bonds, and real estate, investors can mitigate the impact of poor performance from any single investment. However, systematic risk, or market risk, which affects all investments due to economic factors, cannot be eliminated through diversification.
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What type of risk is avoidable through proper diversification?
portfolio risk
Is the best example of firm-specific risk?
The best example of firm-specific risk is the potential for a company to experience a significant drop in stock price due to negative news about its management or a product recall. This type of risk is unique to the firm and does not affect the broader market or other companies in the same industry. Unlike systematic risk, which impacts all firms, firm-specific risk can be mitigated through diversification in a portfolio.
What is systematic risk?
Systematic risk, also known as market risk, refers to the inherent risk that affects the entire market or a large segment of it, rather than a specific company or industry. This type of risk arises from factors such as economic downturns, political instability, or changes in interest rates, which can impact all investments. Unlike unsystematic risk, which can be mitigated through diversification, systematic risk cannot be eliminated and must be managed through strategies like asset allocation. Investors often measure systematic risk using beta, which indicates how a security's price moves in relation to the overall market.
What are some good foods and exercises to help reduce the risk of heart attack?
Eating a healthy diet greatly reduces the risk of any type of heart disease. Some foods that help reduce the risk include: garlic, red wine, dark chocolate, fish, and tea. These foods contain flavonoids that reduce the risk of inflammation, which causes cholerterol blockages in the arteries. Any type of exercise will reduce the risk of heart disease, even something as simple as walking daily.
What are the benefits of portfolio investment?
It reduces the risk of uncorrelated assets. So by combing assets that are distinctive from each other it reduces the overall risk.Answer:The biggest benefit of portfolio investment is that it spreads your investment across different types of financial instrument, each with a different risk-return potential. The main reason for this type of diversification is to reduce overall risk that comes from putting all your money in just one type of investment. Many people rely on professional portfolio management services to maximize gains on their investments.
Why there no reason to believe that the market will reward investor with additional return for assuming unsystematic risk?
There is no reason to believe that the market will reward investors for assuming unsystematic risk because this type of risk is specific to individual assets and can be diversified away. As investors build diversified portfolios, the unique risks associated with individual securities diminish, leading to the conclusion that only systematic risk, which affects the entire market, is compensated through higher expected returns. Therefore, the market does not provide an additional return for bearing risks that can be eliminated through diversification.
What is concentric diversification?
concentric diversification Type of diversification where a firm acquires or develops new products or services (closely related to its core business or technology) to enter one or more new markets.
High levels of this type of cholesterol appear to reduce the risk of atherosclerosis?
That would be no other than RDAs.
When a merger of firms in a variety of different industries is called a?
When a merger of firms in a variety of different industries occurs, it is called a "conglomerate merger." This type of merger involves companies that operate in unrelated business sectors, allowing for diversification of products and markets. Conglomerate mergers can help firms reduce risk by spreading their investments across different industries.
What is the different between particular and fundamental risk?
Particular risk refers to the risk associated with a specific asset or individual investment, such as the performance of a single stock or a real estate property. It can be mitigated through diversification, as it affects only a limited number of assets. Fundamental risk, on the other hand, pertains to broader economic factors that can impact entire markets or sectors, such as changes in interest rates, inflation, or geopolitical events. This type of risk cannot be easily diversified away, as it affects all investments to some degree.
What is diversification of agriculture?
Diversification of agriculture refers to the practice of varying the types of crops and livestock produced on a farm or in a region. This approach can reduce risks associated with market fluctuations, pests, and diseases, as relying on a single crop or livestock type can be detrimental. Additionally, diversification can enhance soil health, improve ecosystem resilience, and provide farmers with multiple sources of income. Overall, it promotes sustainability and food security by creating a more balanced agricultural system.
Changing the alpha level to .05 from .01 what does it do to the risk of Type 1 error?
This will reduce the type 1 error. Since type 1 error is rejecting the null hypothesis when it is true, decreasing alpha (or p value) decreases the risk of rejecting the null hypothesis.
