sentences:  Macroeconomic events, such as changes in interest rates or the cost of labor, causes the systematic risk that affects the returns of all stocks, and the firm-specific events are the unexpected microeconomic events that affect the returns of specific firms, such as the death of key people or the lowering of the firm's credit rating, that would affect the firm, but would have a negligible effect on the economy.In a portfolio, the unsystematic risk due to firm-specific factors can be reduced to zero by diversification.The index model is based on the following