Which of the following is not a non diversifiable risk ?

The correct answer is - Operating risk

Key Points

• Operating risk
  • Operating risk is classified as a diversifiable risk, which means it can be mitigated or reduced by diversifying the investment portfolio.
  • This type of risk arises from the internal operations of a company, such as management decisions, production processes, or employee performance.
  • Unlike other risks mentioned in the options, operating risk is specific to individual companies and is not influenced by broader market or economic changes.

Additional Information

• Non-diversifiable risks
  • Non-diversifiable risks, also known as systematic risks, cannot be eliminated through diversification and affect the overall market or economy.
  • Examples of non-diversifiable risks include:
    • Interest rate risk: The risk of fluctuation in interest rates, impacting investments like bonds.
    • Purchasing power risk: The risk of inflation eroding the real value of money over time.
    • Market risk: The risk of overall market downturns affecting asset prices.
  • Investors typically address non-diversifiable risks through strategies such as hedging or asset allocation.
• Diversifiable risks
  • These risks are specific to individual companies or industries and can be reduced by holding a variety of assets in a portfolio.
  • Examples include:
    • Operational risk: Arising from internal processes or decisions.
    • Credit risk: The risk of default by a borrower.
    • Legal risk: The risk of litigation or regulatory changes affecting a company.