Portfolio diversification does affect investors view of risk. A stocks total, or stand alone, risk as measured by its CV. It might be important to an undiversified investor, but it is not relevant to a diversified investor. A rational risk averse investor is more interested in the impact that the stock has on the riskiness of his or her portfolio then on the stand alone, or total risk. Stand alone risk is composed of a diversified, or company specific risk which can be eliminated by holding the stock in a well diversified portfolio.
Jul 21st, 2014
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