Non-Symmetric Risk Explained

Non-symmetric risk, in the context of the provided options, refers to a risk that can be managed effectively through diversification.

• Option 1: "A risk that can be eliminated by diversifying." This aligns with the definition where non-symmetric risk is treated as diversifiable risk (also known as unsystematic risk or specific risk). By holding a variety of assets, the negative impact of a specific risk affecting one asset can be offset by other assets.

Why Other Options Are Incorrect

• Option 2: "A risk that cannot be eliminated by diversifying." This describes systematic risk (market risk), which is generally considered the opposite of what Option 1 describes.
• Option 3: "A risk that can be eliminated without diversifying." This is incorrect as diversification is the primary method mentioned for eliminating this type of risk.
• Option 4: "A risk that cannot be eliminated." This is too broad and is similar to the definition of systematic risk, not the one corresponding to the correct answer.

Conclusion

Based on the provided correct answer, non-symmetric risk is understood as a risk inherent to specific assets or industries that can be reduced or eliminated by spreading investments across various assets through diversification.