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The total risk of a portfolio can be decomposed in two parts: Systematic (undiversifiable) risk and specific (diversifiable) risk. The effect of diversification is: Reduction
The total risk of a portfolio can be decomposed in two parts: Systematic (undiversifiable) risk and specific (diversifiable) risk. The effect of diversification is:
- Reduction of systematic and specific risks.
- Reduction of systematic risk and no impact on specific risk.
- No impact on systematic risk and reduction of specific risk.
- No impact on any kind of risk.
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