What is non - diversifiable risk, Financial Management

Assignment Help:

What is nondiversifiable risk? How is it measured?

If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which is very unlikely- some risk will remain after assets are combined into a portfolio. The degree of risk which remains is non-diversifiable risk, the part of a portfolio's total risk that cannot be eliminated by diversifying.

Nondiversifiable risk is calculated by a term known as beta (β). The ultimate group of diversified assets, the market, has a beta of 1.0.  The betas of individual assets and portfolios, relate their returns to those of the whole stock market.  Portfolios along with betas higher than 1.0 are comparatively more risky than the market.  Portfolios with betas less than 1.0 are comparatively less risky than the market.  (Risk-free portfolios have a beta of zero.)


Related Discussions:- What is non - diversifiable risk

American stock exchange - amex, It is the third-largest stock exchange by t...

It is the third-largest stock exchange by trading size in the United States. In 2008 it was get hold by the NYSE Euronext and turn into the NYSE Amex Equities in 2009. The AMEX is

What are the benefits of the jit inventory control system, What are the ben...

What are the benefits of the JIT inventory control system? The just-in-time (JIT) inventory control system lesser inventory carrying costs and tends to increase quality.

Find out the interest rate parity is currently holding, Presently, the spot...

Presently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per year in the U.S. and 5.8% per year in t

Personal budget project, 15 points) You need to develop a personal budget. ...

15 points) You need to develop a personal budget. Try to be as realistic as possible. If you are going to school and not working then do some research to find out what salary you w

Explain about the financial risk, Explain about the Financial risk fina...

Explain about the Financial risk financial risk are presumed to be constant, changing cost of each type of capital, j, over time must be affected only by changes in the supply

Auto loan-backed securities (albs), The issuers of ALBS are the finan...

The issuers of ALBS are the financial subsidiaries of automobile manufacturers, commercial banks and other independent finance companies and small financial insti

Describe the basic career stages, Q. Describe the basic Career stages? ...

Q. Describe the basic Career stages? The proper way to analyze and discuss career is to look at them as made up of stages. We can identify five career stages that people most p

Explain the concept of the world beta of a security, Explain the concept of...

Explain the concept of the world beta of a security. Answer:  The world beta calculates the sensitivity of returns to a security to returns to the world market portfolio. It is

Optimal portfolio selection, Optimal Portfolio Selection: The next step...

Optimal Portfolio Selection: The next step involves selecting the optimal portfolio. The strategic asset allocation will have overriding importance in pension fund management.

Leverage, evaluate the importance of leverage in a small scale companyestio...

evaluate the importance of leverage in a small scale companyestion..

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd