smaller than stand-alone risk
larger than stand-alone risk
smaller than diverse risk
larger than diverse risk
✅ The correct answer is A.
If risk can be eliminated with help of diversification, then relevant risk is smaller than stand-alone risk. Standalone risk measures the dangers associated with a single facet of a company’s operations or by holding a specific asset, such as a closely-held corporations. In portfolio management, standalone risk measures the undiversified risk of an individual asset. Relevant risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.
If risk can be eliminated with help of diversification, then relevant risk is smaller than stand-alone risk. Standalone risk measures the dangers associated with a single facet of a company’s operations or by holding a specific asset, such as a closely-held corporations. In portfolio management, standalone risk measures the undiversified risk of an individual asset. Relevant risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.