diversify

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Related to Diversifiable: Diversifiable risk, Non Diversifiable Risk
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Of the 37 IPSs reviewed, only four plans mentioned uncompensated risk, nonsystematic risk, or diversifiable risk.
For the firms with access to the global stock market, the use of the Sharpe-Lintner-Mossin CAPM that presumes market segmentation (Bekaert & Harvey, 1995) will tend to overestimate the cost of equity, since diversifiable risks in a local market investment could now be diversified internationally (Stulz, 1999).
All of these assets are claims on diversifiable income.
On the theoretical side, Fama (1991) suggests that standard asset pricing theory treats information risk as idiosyncratic and fully diversifiable.
i] proxies the systematic/non diversifiable market risk of index i.
Exposure to diversifiable micro risks of greenfield projects and country premiums enhances returns without increasing sensitivity to systematic market risks while generating optionality (to lock in premiums early on or pursue a longer-term hold strategy).
Banks do face liquidity risk, but in this model it is fully diversifiable within the banking system because all spending is routed through banks.
The security risk that is diversifiable by holding a diversified portfolio is known as specific/unsystematic risk.
The assumption is that the portfolio manager has diversified away the diversifiable risk (unsystematic risk/company specific risk) and the matter of concern for the investor should be the systematic risk (non- diversifiable/market risk) only, instead of total risk.
Fama and French argue that high average returns on small cap stocks and high book to market ratio stocks reflect unidentified state variables that produce non diversifiable risks in returns and that are not captured by the market return and are priced separately from market beta.
Financial theory (Weston & Copeland, 1998) identifies diversifiable and non-diversifiable risks.

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