Risk and Rates of Return参考.pptVIP

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Breaking Down Sources of Risk Stand-alone risk = Market risk + Diversifiable risk Market risk: portion of a security’s stand-alone risk that cannot be eliminated through diversification. Measured by beta. Diversifiable risk: portion of a security’s stand-alone risk that can be eliminated through proper diversification. 8-* Failure to Diversify If an investor chooses to hold a one-stock portfolio (doesn’t diversify), would the investor be compensated for the extra risk they bear? NO! Stand-alone risk is not impor