How do you think ?

Diversifiable and non-diversifiable risk must be defined before examples may be given. These terms are also understood as unsystematic and systematic risk. Unsystematic risk is a hazard that is inherent within a singular industry instead of the entire market. This risk may be alleviated through the diversification of a portfolio. Alexeev and Tapons article discuss the use of diversification to reduce unsystematic risk. They use an example of policy that directly affected the automotive industry. Having a diversified portfolio of other sectors would greatly reduce ones risk compared to a portfolio that consisted of solely automotive common stocks. Systematic risk is a danger that is inherent within the market as a whole. An action or event that could possibly affect the entire market and is not curable with diversification. There are a multitude of examples for systematic risk, such as the 2008 financial crisis or even the recent dip due to Covid-19. However the article, The Effects of Rate Regulation on Mean Returns and Non-Diversifiable Risk: The Case of Cable Television. The authors describe how the 1992 Cable Act created uncertainty and increased stock betas in sectors across the board. This risk is unavoidable with stock diversification and is a prime example of systematic risk.