9-13 Risk and diversification Diversification- Strategy designed to reduce risk by spreading the portfolio across many Investments Unique Risk-Risk factors affecting only that firm Also calleddiversifiable risk Market Risk- Economy-wide sources of risk that affect the overall stock market. Also called systematic risk Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 9- 13 Irwin/McGraw-Hill Risk and Diversification Diversification - Strategy designed to reduce risk by spreading the portfolio across many investments. Unique Risk - Risk factors affecting only that firm. Also called “diversifiable risk.” Market Risk - Economy-wide sources of risk that affect the overall stock market. Also called “systematic risk