Graphical Distinguishing Beethoven Diversifiable Risk and Non-Diversifiable Risk .draw a graph Graphical Distinguishing Beethoven Diversifiable Risk...

Graphical Distinguishing Beethoven Diversifiable Risk and Non-Diversifiable Risk .draw a graph

Graphical Distinguishing Beethoven Diversifiable Risk and Non-Diversifiable Risk .

Expert Solution

Difference Between Diversifiable Risk and Non-Diversifiable risk

Basis	Non- Diversifiable Risk	Diversifiable Risk
Meaning	Non-Diversifiable risk which is also called as systematic risk is inherent to the entire market or entire market segment.	Diversifiable risk which is also called as risk inherent to the specific company or industry
Control	It can't be controlled by an organization	It can be controlled by an organization
Nature	Macro in nature	Micro in nature
Types	Interest rate risk, Market risk , purchasing power / inflationary risk	business liquidity risk/ financial and credit risk
Example	Recession and war situation effects the whole market	sudden strike of employees in a company which effect on that particular company

For the graph please refer to the image uploaded.

Explanation for the graph:

1) the constant parallel line to the X axis denote the non diversifiable risk which is common to the all securities in the portfolio

2) the steep line coming down from Y axis the diversifable risk pertain to certain securities which can be mitigated.

jeff jeffy answered 2 years ago

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