Assume you invested your entire fortune in one company, General Motors

Company. Then an alien comes to earth in a space ship and gives us new technology that we can use to travel, run everyday errands, and basically live our lives without the need for GM. Your investment in GM is toast, right? But even if you had diversified some of your investment into United Airlines, you would still be toast. You might call that an industry level systematic risk. However, you could have diversified some of that risk by investing part of your fortune in a different industry.

Since we studied risks in great details last week, we are not looking for Wiki or investopedia definitions…

How can we use both systematic and non-systematic risks to increase our returns?

2you should not put all of your eggs in one basket. As a more practical exercise, let us assume you are deciding to invest in two stocks. Unfortunately, you have limited resources, so you want to invest $10,000 for your stock portfolio. You want your portfolio return to be 15%. Also, stock I has an expected return of 16 percent and stock II has an expected return of 9 percent. 

3.How much should you invest in stock I?

In stock II?

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