Expert: Gina Boykin - 1/14/2008

Question
are systematic and unsystematic risks affected by increasing the number of stocks in a protfolio. If yes then how?

Thanks.

Answer
No.  Systematic risk is market risk. There are certain things, like war or a recession, that affect the whole market. No matter what types of stocks or how many you have, you will be affected.

Unsystematic risk is the exact opposite. It is risk related to a certain stock or certain group of stocks.  This can be reduced by diversifying (having different types of stocks) but doesn't really have anything to do with the # of stocks. For example, if you have 20 different technology stocks, you haven't minimized this type of risk.  Having 5 stocks each in energy, technology, pharmaceutical, and consumer goods would reduce this type of risk.  In each case, you have the same # of stocks.