Question

How do you think the global pandemic has affected the systematic risk of different stocks/sectors in the market and what are the implications for portfolio diversification? ( please write at least 150 words)

Answer 1

Global pandemic has increased the systematic risk of different sectors in different economy because there has been a growing uncertainty in different parts of the world due to increasing concern and lock down and the ripple effect of the coronavirus on the economy in the long run and it has been predicted that there will be an impending global recession by the various monetary Fund and experts so there is an environment of high volatility and high uncertainty.

When there will be an economic situation in which there will be a high uncertainty and volatility , it will lead to increase in the systematic risk related to investment because these clouds of uncertainty is leading to risk related to investment in the long run as they are leading to changes in the monetary policy and inflation expectation and other performance based indicators of various companies like airlines companies along with commodities and other consumer based companies has taken the hit as they have continuously gone down because there is a risk related to underperformance.

There will not be much implication of the portfolio diversification because portfolio diversification will not be leading to elimination of the systematic risk and it can only lower the systematic risk to certain levels.