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June 30, 2015 at 1:21 pm
Sir, what if the 3 industries you gave as an example are belonging to 3 different sectors? Then is it possible to diversify the risk? Or is diversification possible only among industries in the same business sector?
Could you please correct me- Total risk= Systematic + Unsystematic.
Systematic risk cannot be eliminated nor reduced. Unsystematic risk can be removed or reduced by diversification. Did I understand it right?
And is it because of the presence of systematic risk that risk cannot be equal to 0?
John Moffat says
June 30, 2015 at 5:48 pm
In practice you would diversify between shares in different sectors. The unsystematic risk would be reduced and the systematic risk would be the average of the systematic risk of the shares chosen.
Yes – the total risk is systematic and unsystematic.
Yes – unsystematic can be reduced/removed by diversification.
In theory there can be systematic risk of zero – an investment with zero risk (such as government securities). In practice even government securities carry some risk and so there will always be some risk.
June 30, 2015 at 6:00 pm
Thank you Sir. I like all your lectures. They are so understandable. Thanks ever so much for this.
June 30, 2015 at 6:08 pm
You are welcome
February 17, 2015 at 11:21 pm
I just started watching the videos and I wanted to know in advance if Mergers and Acquisitions are well covered in the video lectures – I struggled in question 1 in the Dec 2014 exam and this time I want to be ready for it…
March 13, 2014 at 9:06 am
Sir you said that risk cannot be removed but can only be reduced,so how come in the Icecream and umbrella eg the risk was 0 when half of the money was invested in each?
March 13, 2014 at 9:33 am
I did not say that at all!
I said that in real life, investments are positively correlated and so risk cannot be removed (the systematic risk will remain) but that it can potentially be reduced.
Ice cream and umbrella was an extreme example where they were perfectly negatively correlated that does not occur in real life.
February 24, 2013 at 10:54 am
Hello, I am a bit confused – in example 3 are you saying that the standard deviation=market risk?
March 12, 2013 at 10:54 am
From the previous lectures, Tutor has clearly explained that when the standard deviation increases the risk also increases. Standard deviation is the measure of risk itself. Am I right admin? Correct me if I am wrong ?
July 18, 2012 at 8:13 am
well explained. lot of thanks and Gods blessings to you.
June 1, 2012 at 10:05 am
it makes me clear to prepare for my june exam,thanks
February 27, 2012 at 11:50 am
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