When a portfolio is diversified, what type of risk is reduced?Group of answer choicesunsystematic risksystematic risk

When a portfolio is diversified, the type of risk that is reduced is unsystematic risk.

Here's why:

1. Unsystematic risk, also known as specific risk, is the risk associated with a specific company or industry. This risk can be mitigated through diversification, which involves spreading investments across various assets.

2. Diversification reduces the impact of any one investment's performance on the overall portfolio. If one investment performs poorly, it's offset by other investments that perform well.

3. Systematic risk, on the other hand, is the risk that affects all companies and industries. It's caused by factors such as inflation rates, exchange rates, political instability, war, and changes in interest rates. Diversification cannot mitigate this type of risk because it affects the entire market.

So, in conclusion, diversification reduces unsystematic risk.