Asked by eisha tayyab on Jun 19, 2024
Verified
A theoretically ideal way to eliminate market risk is to diversify into the stocks of companies that make products investors buy when the stock market is depressed.
Market Risk
The risk of losses in positions arising from movements in market prices.
Diversify
The strategy of spreading investments across various financial assets, industries, or other categories to reduce risk.
- Understand the differences between systematic and unsystematic risks and the impact of diversification on these risks.
Verified Answer
MJ
Michael JordanJun 22, 2024
Final Answer :
True
Explanation :
Diversifying into the stocks of companies that make products investors buy during a market downturn can help mitigate the impact of market risk on a portfolio. This is because even if the market as a whole is down, these companies may experience increased demand for their products and therefore may still see growth in their stock prices. However, it is important to note that diversification cannot completely eliminate market risk.
Learning Objectives
- Understand the differences between systematic and unsystematic risks and the impact of diversification on these risks.