Question: What is the difference between systematic and nonsystematic risk? Which, if either, can be diversified away? Please explain your answer in the context of figure

What is the difference between systematic and nonsystematic risk? Which, if either, can be diversified away? Please explain your answer in the context of figure 7.1, panel B (e.g., Why are unique risk sloped downward and market risk flat in this picture?) How is the insurance principle related, if at all, to the concepts of systematic and nonsystematic risk? Explain.

What is the difference between systematic and nonsystematic risk? Which, if either,

Unique Risk Market Risk Figure 7.1 Portfolio risk as a function of the number of stocks in the portfolio Panel A: All risk is firm specific. Panel B: Some risk is systematic, or marketwide

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