Why can’t systematic risk be eliminated through diversification according to the chapter on Cost of Capital?

Systematic risk cannot be eliminated through diversification because it affects nearly all assets to some degree, regardless of the number of assets in a portfolio. Unlike unsystematic risk, which is unique to individual assets and can be diversified away, systematic risk remains present in any investment portfolio.

The text explains that systematic risk, also known as market risk or nondiversifiable risk, is inherent to the entire market and impacts almost all assets. Therefore, no matter how many different assets are included in a portfolio, systematic risk persists. In contrast, unsystematic risk is specific to individual assets and can be mitigated through diversification, as the unique risks of individual assets tend to cancel each other out in a larger portfolio.