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Abstract
Investment in stock (and all other financial assets) has two basic parameter. One is risk and the other one is return. These parameters have an inverse relationship and all investor face a trade - off between risk and return. These are two types of risk. One is systematic and unsystematic risk. Systematic risk is the risk that exists inherently with investment due to changes in the whole economic political and social condition .systematic risk is non-diversified. Unsystematic risk however is firming specific and is diversified. It is contributed by problem and risk involve in one company. Modern portfolio theory suggests that as the number of securities in a portfolio increase the portfolio risks decrease. It basically implied that investing in more securities; investor can avoid the specific risks involved in individual firms. This study will apply theory on securities traded on the NSE starting from making a portfolio with 100% investment in one security to an equal weighted investor in six securities. This securities selection frim Indian stock market.
Keywords: Systematic Risk, Unsystematic Risk, Portfolio Management and Diversification"
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Introduction
Simply, the investment process consists of two tasks. One is securities analysis and the other is portfolio analysis. Portfolio theory was proposed by harry Markowitz in the year of 1950s. He was the first person to show quantitatively why and how diversification reduces risk. In simply, portfolio means a group of various securities where we have to invest our money for reducing securities related risk.so, total risk can be divided into parts one is unsystematic risk and the other one is systematic risk. Total risk of securities is the sum of specific risk and market risk and specific risk can be removing by diversification. so, portfolio theory is totally based on the at which it can be eliminated up to until the systematic risk of the portfolio. If investor increases the number of investment holding from 1 to 2, 3, 4, and so on, investor achieve considerable portfolio risk reduction. The result of diversification is reduction in portfolio volatility reduction in portfolio risk. These kinds of risk are called unsystematic risk. It may be called diversified risk, unick risk, avoidable risk and non-market risk. Systematic risk is that...