Investopedia defines Diversification — A risk-management technique that mixes a wide variety of investments within a portfolio. 

The rationale contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Systematic risk is "un-diversifiable risk" or "market risk.". The risk inherent to the entire market or entire market segment. Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged.

Unsystematic Risk is "specific risk", "diversifiable risk" or "residual risk". Unsystematic risk is company or industry specific risk that is inherent in each investment. Only unsystematic risk can potentially be reduced through appropriate diversification.

For example, news that is specific to a small number of stocks, such as a sudden strike by the employees of a company you have shares in, is considered to be unsystematic risk.

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated. 

Studies and mathematical models have shown that maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost-effective level of risk reduction. Investing in more securities will still yield further diversification benefits, albeit at a drastically smaller rate

Diversification does not ensure a profit or guarantee against a loss. During a major world market decline, such as the period 2007 - 2009, diversification may not manage risk or limit loss.

Even a portfolio of well-diversified assets cannot escape all risk.