2007-01-11 18:59:54 · 4 answers · asked by Anonymous in Business & Finance ➔ Investing
While it is correct that a portfolio of stocks leaves one less exposed to stock-related risks, it is incorrect to say that the level of unsystematic risk is nil or nothing. Firstly, yes, systematic risk will always remain, and irrespective of how many stocks you have in your portfolio, this systematic risk will continue to exist. In your question you refer to portfolio of stocks - however, in reality, a portfolio of stocks by itself will not reduce non systematic risk, but the overall level of diversity in your portfolio is what reduces unsystematic risk. This level of diversification is ascertained based on the correlation between two or more stocks. Naturally, if a portfolio has 2 stocks, and one is negatively correlated with the other, the risk between them is nullified, leaving the portfolio of 2 stocks exposed to systematic risk. In conclusion, it is the level of correlation between the stocks in your portfolio that you need to understand to make the conclusion whether systematic risk is the only risk you need to consider.
2007-01-11 23:45:52 · answer #1 · answered by DJ 1 · 1⤊ 0⤋
Systematic risk is market risk (sorry answering below)
If your portfolio is well diverisfied then probably yes, this would also depend on the number of stocks in the portfolio. Wouldn't harm you to look at each stock's beta as well.
2007-01-11 21:02:56 · answer #2 · answered by Kyle is my alter ego 1 · 0⤊ 0⤋
What's systematic risk? You need to consider whether the companies (that's what stocks are, you know) have good leadership/management, good product/service, good systems in place to distribute this product/service, effective advertising to alert the public to this product/service, and responsible, honest cash management.
I've never heard of this "systematic risk" thing, but the biggest risk you can ever have is not knowing the companies you invest in. You might as well just give your money to me...
2007-01-11 20:44:48 · answer #3 · answered by wood_vulture 4 · 0⤊ 0⤋
You could reduce your risks by hedging your stocks with instruments like exchange traded options or Index Options.
Thus you need to consider the market risk, company's risk profile etc
2007-01-11 19:04:40 · answer #4 · answered by Muga Wa Kabbz 5 · 0⤊ 0⤋