Risk

Risk

Risk is both correlated and uncorrelated.

Correlated risk - Cannot be eliminated through diversification. We must use other means. This nondiversifiable, or market, risk is the risk generate by the overall market itself and accounts for a large portion of portfolio risk.

Uncorrelated risk - Comes from the effects of all sorts of exogenous variables on individual issues and has more to do with the risk of the individual issue than the overall market. Uncorrelated risk can be reduced by diversification into dissimilar or uncorrelated issues or systems.

Source: Kirkpatrick, Charles and Dahlquist, Julie. Technical Analysis: The Complete resource for Financial Market Technicians; © 2007