Investment

Correlation

Simon, Inc.

-0.55

Paula, Inc.

0.78

Randy, Inc.

0.21

Explain the difference between unsystematic and systematic risk, and give some examples of each type. Why can educated investors comfortably ignore unsystematic risks when constructing a portfolio? You are considering adding one of the following three investments to your portfolio, which each have the following correlations to your existing investments. Which one would reduce your risk the most if you added it? Which one would reduce your risk the least?