Consider 3 portfolios:
1) Invest 100% into a banking stock with beta=2,
2) Invest 100% into a resources stock with beta=2,
3) Invest 50% into the banking stock & 50% into the resources stock.
According to modern portfolio theory, all 3 options have the same portfolio beta. Yet most people would consider option 3 to be less risky due to being diversified.
Is there a way to measure non-systematic or "diversifiable risk" when comparing portfolios?