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Short Term Financial Risk Concepts

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Examine the concept of financial risk by answering the following questions: (a) How does the risk of a portfolio change as the number of assets in the portfolio increases? (b) Provide an example of a unique risk that can be reduced by portfolio diversification. (c) Provide an example of a market risk that cannot be reduced by portfolio diversification. (d) What does the beta of an asset or portfolio measure?

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A written discussion of the topic of diversifiability and beta.

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a) As the number of assets in a portfolio increases, the risk of the portfolio will drop due to the elimination of diversifiable risk.

b) The unique risk is a risk that is specific to one stock in particular. This type of risk is called diversifiable risk since with enough stocks ...

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Robert Reinhart, MBA
Education
  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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