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Diversifiable Risk

 

A diversifiable risk is the risk that can be reduced by increasing number of investments in the investment portfolio. For example, company’s risk can easy diversifiable by choosing more companies. Even country’s political risk can be diversifiable if investing in many countries would reduce one country’s influence to the investment portfolio. However, sometimes diversification will not help, because doesn’t matter how many stocks you will include in the portfolio, you still face a market risk.

 

If risk can be diversified, it should be. Because diversification is very important in investment optimization process and good diversification is equal to increase of the portfolio return.






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