A portfolio is the total collection of all investments held by an individual or institution, including stocks, bonds, real estate, options, futures, and alternative investments, such as gold or limited partnerships.

 Portfolio risk is a chance that the combination of assets or units, within the investments that myself own, fail to meet financial objectives. Each investment within a portfolio carries its own risk, with higher potential return typically meaning higher risk. 

Portfolio risk consists of two components: 

1.systemic risk and 

2. Diversifiable risk risk.

Systematic risk is the risk of losing investments due to factors, such as political risk and macroeconomic risk, that affect the performance of the overall market. Market risk is also known as volatility and can be measured using beta. Beta is a measure of an investment's systematic risk relative to the overall market. Market risk cannot be mitigated through portfolio diversification. However, an investor can hedge against systematic risk. A hedge is an offsetting investment used to reduce the risk in an asset. 

For example, suppose an investor fears a global recession affecting the economy over the next six months due to weakness in gross domestic product growth. The investor is long multiple stocks and can mitigate some of the market risk by buying put options in the market. Specific risk or diversifiable risk, is the risk of losing an investment due to company or industry-specific hazard. Unlike systematic risk, an investor can only mitigate against unsystematic risk through diversification. An investor uses diversification to manage risk by investing in a variety of assets. He can use the beta of each stock to create a diversified portfolio.