8.8 Beta: The Measure of Risk in a Well-Diversified Portfolio

A graph showing portfolio diversification and the elimination of unsystematic risk.

Figure 8.11

Portfolio diversification and the elimination of unsystematic risk.


The horizontal axis of the graph is labeled Number of stocks in portfolio; the vertical axis is labeled Total risk. The numbers 0, 5, 10, 15, 20, and 25 are indicated along the horizontal axis at regular intervals.

A blue line (labeled Risk of the portfolio) is drawn from near the top of the Total risk axis and slopes down and to the right to approximately 28 on the Number of stocks in portfolio axis. At this point, the risk is fairly low.

The line indicates that the total risk of the portfolio ...

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