Does anyone have any ideas of answering the optional question? Seemed like a really interesting topic to me, but I just haven't yet been able to come up with a good answer! I think that the systematic risk is the risk associated with the portfolio (Market) and the unique risk is just a risk associated with each individual stock! But I really do not know how an arbitrager can earn risk-free profits. When he/she set up a mutual fund by just combining all high standard deviation stocks which would also increase the risk of the mutual fund, how a high risk mutual fund be attractive to investors? Did I misunderstanding something here? Thank you very much in advance!

[NEAS: Combining stocks eliminates the non-systematic risk.]