• Unsystematic risks
• Refers to company specific risks, such as the quality of mgmt.
• Systematic risks
• Refers to Market related risks, such as exchange rate changes & interest rate exposures
• Diversification
• Under the Modern Portfolio Theory, unsystematic risks can be eliminated through Diversification
• Investing in many securities is better than investing in one particular stock
• Applicable to securities with Low or Negative Correlation
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