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If an investor diversifies his portfolio, appropriate measure of risk for any one security in the...

If an investor diversifies his portfolio, appropriate measure of risk for any one security in the portfolio is this. A. standard deviation B. Beta C. Sharpe ratio D. coefficient of variation

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Expert Solution

The correct answer is B. Beta

Diversification can reduce the Unsystematic risk component.
Unsystematic Risk - It is the volatility of a stock on account of internal company specific factors. This risk can be avoided through diversification. The greater the number of stocks in the portfolio the greater is the chance of Unsystematic Risk getting cancelled out.


Systematic Risk is the volatility of a stock on account of economy wide factors. It affects all stocks in the same direction with unequal sensitivity. It is the risk which is inherent to the market and it cannot be avoided through diversification. This risk is also known as undiversifiable risk. Increasing number of stocks will not affect the systematic or undiversifiable risk

Beta coefficient measures the Systematic Risk.

jeff jeffy answered 2 years ago
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