Stock Market · True or False
Is it true that diversification does not eliminate market-wide risk?
True. Systematic risk affects entire markets.
Diversification eliminates company-specific risk but not market-wide risk — during systemic crashes, nearly everything drops together regardless of diversification.
Assuming a diversified portfolio is crash-proof, then being surprised when a market-wide downturn affects all your holdings simultaneously.
This scenario is one of 155 in the Skillful Stock Market track. Each card states a situation, you decide true or false, and the explanation follows immediately.
- Answer
- True
- Track
- Stock Market
- Topics
- diversification, systemic-risk
Also asked as
Does diversification protect against all types of risk? Can a diversified portfolio still lose money in a crash? What risk does diversification not eliminate?
The scenario in full
Diversification does not eliminate market-wide risk.
Frequently asked questions
Is it true that diversification does not eliminate market-wide risk?
True. Systematic risk affects entire markets.
Does diversification protect against all types of risk?
True. Systematic risk affects entire markets. Diversification eliminates company-specific risk but not market-wide risk — during systemic crashes, nearly everything drops together regardless of diversification.
Can a diversified portfolio still lose money in a crash?
True. Systematic risk affects entire markets. Diversification eliminates company-specific risk but not market-wide risk — during systemic crashes, nearly everything drops together regardless of diversification.
What risk does diversification not eliminate?
True. Systematic risk affects entire markets. Diversification eliminates company-specific risk but not market-wide risk — during systemic crashes, nearly everything drops together regardless of diversification.
Where does this stock market question come from?
It is one of 155 scenarios in the Skillful Stock Market track. Each card states a realistic situation, you decide true or false, and the explanation follows immediately.
How do I practise more questions like this?
Start the Stock Market quiz. It runs about two minutes per session, the first 150 questions are free across every category, and your progress saves automatically.