Assume that two investors each hold a portfolio, and that portfolio is their only asset. Investor A's portfolio has a beta of MINUS 2.0, while Investor B's portfolio has a beta of PLUS 2.0. Assuming that the unsystematic risks of the stocks in the two portfolios are the same, then the two investors face the same amount of risk. However, the holders of either portfolio could lower their risks, and by exactly the same amount, by adding some "normal" stocks with beta = 1.0.

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Both investors face the same amount of unsystematic risk, but their systematic risks (measured by beta) are opposite in sign. By adding "normal" stocks with beta = 1.0, both investors could lower their systematic risk by the same amount, bringing their betas closer to 1.0.

Assume That Two Investors Each Hold a Portfolio, and That