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Chapter 17
Diversification of unsystematic risk
As an investor increases the size of his portfolio, overall risk reduces.
Risk of
portfolio
Unsystematic
risk
Systematic
risk
Number of shares in portfolio
If the investor has approximately 15-20 well-chosen shares in their
portfolio, the unsystematic risk will be eliminated.
Systematic risk cannot be eliminated by diversification.
Illustrations and further practice
Now try TYU question 19 from Chapter 17.
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