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

Explain the role of commission authorities, Explain the Role of commission ...

Explain the Role of commission authorities Competition Directorate is one of the independent public bodies which help ensure healthy competition between companies which then be

Show the analysis of credit information, Q. Show the Analysis of Credit Inf...

Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t

Option-adjusted spread, The Option-Adjusted Spread (OAS) is a measu...

The Option-Adjusted Spread (OAS) is a measure of the yield spread (expressed in basis points) which can be used to convert differences between the values an

Cash flows from portfolio of us standard mortgages, The cash flows ...

The cash flows from a portfolio of US standard mortgages have the characteristic of being uncertain. The cash flows from the mortgage consists of three comp

Higher production costs, Previous MOS = 750 - 270 = 480 aircraft; Revised M...

Previous MOS = 750 - 270 = 480 aircraft; Revised MOS = 750 - 420 = 330 aircraft Explanation that a lower MOS = lower levels of profit and therefore exposes the business to more

Statement of total comprehensive income, At 31 July 2010 this instrument me...

At 31 July 2010 this instrument meets the definition of a derivative: Small or no initial investment. Its value is dependent on an underlying economic item; exchange ra

What is the ratios based on historic cost accounts, What is the Ratios base...

What is the Ratios based on historic cost accounts Ratios based on historic cost accounts don't give a true picture of trends, due to the effects of inflation and different acc

Important areas of personal financial management, Gary and Joyce Yau, both ...

Gary and Joyce Yau, both 30, last month bought their dream house in London, Ontario. The purchase price was $450,000 plus addition fees such as taxes, legal fees, administration fe

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