Question

which of the following is true of unsystematic risk?
it is also known as non - diversifiable risk.
the correlation among the returns of assets within a portfolio are irrelevant to this type of risk.
its presence commands a return in excess of the risk - free rate.
it can be diversified away by relying on the lack of a tight positive relationship among the returns of a set of individual assets.

Explanation:

1. Analyze Option 1: Unsystematic risk is diversifiable, while non - diversifiable risk is systematic risk. So this option is wrong.
2. Analyze Option 2: The correlation among asset returns in a portfolio is relevant to unsystematic risk because diversification (which relies on low or negative correlations) helps reduce unsystematic risk. So this option is wrong.
3. Analyze Option 3: Only systematic risk (related to market - wide factors) commands a return in excess of the risk - free rate. Unsystematic risk does not, as it can be diversified away. So this option is wrong.
4. Analyze Option 4: Unsystematic risk is specific to individual assets or a small group of assets. By including assets with returns that do not have a tight positive relationship (i.e., diversifying), unsystematic risk can be reduced or eliminated. This matches the definition of unsystematic risk.

Answer:

The option "It can be diversified away by relying on the lack of a tight positive relationship among the returns of a set of individual assets." (the last option, assuming the options are presented in the order: first option, second option, third option, fourth option as in the image)