Relationship between beta and idiosyncratic risk

How to Measure Idiosyncratic Risk in a Stock Portfolio - Budgeting Money

relationship between beta and idiosyncratic risk

The idiosyncratic risk is the portion of risk unexplained by the market factor. .. so , total beta=total risk=Beta/Correlation(r) =1/.5 = 2 total beta = 2. thanks. Unsystematic risk can be mitigated through diversification. . confirmed a linear relationship between the financial returns of stock portfolios and their betas. Asset pricing with idiosyncratic risk: The Spanish case . a negative and signifi cant relation between idiosyncratic risk and cross-sectional stock returns. another kind of systematic risk un-captured by the beta coefficient.

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relationship between beta and idiosyncratic risk

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  • Idiosyncratic Risk
  • Systematic risk