+ 0 3. The unsystematic risk component of the total portfolio can be reduced by adding negatively correlated stocks to the portfolio.

+ 0 4. Portfolio risk will increase if more stocks that are positively correlated with the other stocks are added to the portfolio.

Total portfolio risk Unsystematic risk (unique risk) Systematic risk (market risk) 1 Security 15-20 securities Number of securities 0 Total portfolio risk Unsystematic risk (unique risk) Systematic risk (market risk) 1 Security 15-20 securities Number of securities 0