Question 4Market (or systematic) risk ___________ whereas idiosyncratic risk __________.

Market (or systematic) risk cannot be eliminated through diversification, whereas idiosyncratic risk can be reduced or eliminated through diversification.

Step 1: Understand the two types of risks. Market risk, also known as systematic risk, is the risk that affects all companies in the market. It is caused by factors such as inflation rates, exchange rates, political instability, changes in interest rates, and natural disasters. On the other hand, idiosyncratic risk, also known as unsystematic risk, is company or industry-specific risk. It is the risk that a specific company or industry will underperform due to company or industry-specific factors.

Step 2: Understand the impact of diversification on these risks. Diversification is the strategy of investing in a variety of securities in order to lower the risk associated with putting all your money in one investment. By diversifying, you can reduce the idiosyncratic risk because the poor performance of one company or industry can be offset by the good performance of other companies or industries in your portfolio.

Step 3: Therefore, the statement can be completed as follows: Market (or systematic) risk cannot be eliminated through diversification, whereas idiosyncratic risk can be reduced or eliminated through diversification.