Q. What do you mean by diversifiability of total risk?

Traditional finance theory assets that the rate of return on risk assets depends on the size of business risk, financial risk, liquidity risk and inflation risk. However the modern portfolio theory identifies that the risk premiums should solely be a function of the systematic risk of a security contributions made by harry Markowitz indicate that not all of the sacristy's total risk is relevant as much of it dan be diversified away in portfolio context. That is , if a security has been combined with other securities a portion of the variation in expected return would be in smoothed out or cancelled by complimentary variation in other securities.