Which would impact airline earnings

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Question: Do you agree with this statement? Explain why

While diversification is good for mitigating unsystematic risk, systematic risk can impact all stocks. It's important to note that even with systematic risk, diversification can still offer some resiliency. For example, if my spouse works for Southwest Airlines and I work for a grocery store, my spouse's company would be more exposed to systematic risk. Investors may invest in both for diversification to prevent unsystematic risk and, in doing so, may also see some benefit against systematic risk. For example, a common risk impacting all stocks would be a recession. Fortunately, people need to eat to survive, so the grocery sector will still have constant demand. In contrast, air travel is more sensitive to recessions since consumers can cut back on non-essential travel, which would impact airline earnings. While the recession is systematic and affects both sectors, the airline sector would be moved to a greater degree due to the volatility of demand, whereas the need for food would remain constant.

Reference no: EM133378738

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