If an FIs trading portfolio of stock is not well-diversified, the additional risk that must be taken into account is

Question

BlackTom AI · Accepted Answer

When evaluating a trading portfolio that is not well-diversified, the central issue is the risk that arises from assets moving together due to idiosyncratic factors. 
Option A: timing risk. This is a concern in some trading or investment contexts, but it refers to the risk of making entries or exits at inopportune times rather than the inherent lack of diversification. It does not specifically capture the extra risk from concentrated portfolio exposure to specific assets. 
Option B: unsystematic risk. This is the correct concept here. Unsystematic risk, also known as idiosyncratic risk, arises from firm- or asset-specific factors and can be diversified away by holding a broader, well-diversified portfolio. If a portfolio is not well-diversified, this risk remains and must be considered in risk assessment. 
Option C: systematic risk. Systematic risk affects the entire market or a large portion of it and cannot be eliminated through diversification. While important, this is not the additional risk that remains specifically due to poor diversification; rather it is the baseline market risk that cannot be diversified away. 
Option D: default risk. Default risk pertains to the likelihood that a bond issuer (or similarly credit-sensitive instrument) fails to meet its obligations. While relevant in fixed-income analysis, it is not the generic “additional risk due to lack of diversification” across a stock portfolio. 
Option E: interest rate risk. This risk stems from changes in interest rates affecting asset prices, particularly fixed-income instruments and some equities. It’s a broader market mechanism rather than the core consequence of having a non-diversified stock portfolio. 
In summary, the key idea is that a not-well-diversified stock portfolio contains residual idiosyncratic risk that could be reduced by diversification; thus unsystematic risk is the principal additional risk to consider in this scenario.

If an FIs trading portfolio of stock is not well-diversified, the additional risk that must be taken into account is单项选择题

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