The risk less than if it were held in isolation. LO10.17 Differentiate between stand-alone risk, diversifiable risk, and portfolio risk. Diversifiable risk is the part of the stand-alone risk that can be eliminated by being part of a well diversified portfolio. The portfolio risk is the risk of a collection of investments where the risk of each investment to some degree offsets the risk of the others. Explain how to measure the risk of a portfolio.
Risk is measured by dispersion of outcomes or the standard deviation or variance.
Define the concepts of corporate risk and market risk. Corporate risk is the equivalent of portfolio risk in a business context. Market risk is the risk contribution of a project to a well-diversified portfolio. In corporate risk, the portfolio is defined as the collection of projects held within a business. In market risk, the portfolio is defined as the collection of projects held within a well-diversified stock portfolio.