Classical portfolio theory Maximize expected portfolio return per unit of expected portfolio risk. Separate total risk of a portfolio into two components systematic risk and unsystematic risk. --Systematic risk is the risk of the market itself(non- diversifiable). --Unsystematic risk is the risk of individual securities within the market and the portfolio (diversifiable). Increasing the number of securities in the portfolio reduces and ultimately eliminates the unsystematic risk the risk of the individual securities leaving only the risk of the market,the systematic risk..Classical portfolio theory Maximize expected portfolio return per unit of expected portfolio risk. Separate total risk of a portfolio into two components ： systematic risk and unsystematic risk. --Systematic risk is the risk of the market itself (non- diversifiable). --Unsystematic risk is the risk of individual securities within the market and the portfolio (diversifiable). Increasing the number of securities in the portfolio reduces and ultimately eliminates the unsystematic risk - the risk of the individual securities - leaving only the risk of the market, the systematic risk