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 discounting or present value concept, Q. Explain Discounting or Pre...

Q. Explain Discounting or Present Value Concept? Discounting or Present Value Concept: - According to this concept rupee one of today is more valuable than rupee one a year lat

Examine the pay-back period , Critically examine the pay-back period as a t...

Critically examine the pay-back period as a technique of approval of projects.

Cost of capital , ABC Ltd. Produces electronic components with a selling pr...

ABC Ltd. Produces electronic components with a selling price per of Rs.100. Fixed cost amount to Rs.2,00,000/- 5000 units are produced and sold each year. Annua

Equity instruments, QUASI-INSTRUMENTS These instruments are considered ...

QUASI-INSTRUMENTS These instruments are considered as debt instruments for a time-frame and are converted into equity at the option of the investor (or at company's option) aft

Constructing synthetic swaps, (a) Prior to FAS 133 if companies qualified ...

(a) Prior to FAS 133 if companies qualified for hedge accounting their hedges were assumed to be perfect-no valuation or testing required. Currently under FAS 133 risk managers se

Replacement Theory, How is the failure Table for assets that fail suddenly ...

How is the failure Table for assets that fail suddenly constructed?

Problems using walter''s model, the following information related to sun lt...

the following information related to sun ltd.paid-up capital-1000000. earnings of the co-100000. dividend paid-80000. price-earning ratio(pie)-20. no of equity shares-100000.find o

Macaulay duration and modified duration, We can also express Modified...

We can also express Modified duration as follows:                                                                                               ...Eq. (3) The

Rating scale, Rating denote an issuer's ability to respond to adverse...

Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into variou

What is a treasury bill? how risky is it?, What is a Treasury bill? How ris...

What is a Treasury bill? How risky is it? Treasury bills are the short-term debt instruments issued by the U.S. Treasury that are sell at a discounted and pay face value at mat

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