Hi @David Harper CFA FRM @Nicole Seaman
Beta is a measure of a stock's volatility in relation to the market. It essentially measures the relative risk exposure of holding a particular stock or sector in relation to the market.
Thus a beta greater than 1 indicates that the portfolio will move in the same direction as the market, and with a higher magnitude than the market. Stocks with betas above 1.0 are quite sensitive to systematic risk. The securities has an important systematic risk and there is low diversification benefit. What does this low diversification benefit mean in the case of a securities ?
CAPM enables us to measure the expected return of an asset. But what is the relationship between holding a diversified portfolio and the expected return of an asset?
It is a bit confusing for me the link between beta of an asset and the diversification benefit.
Thanks
Beta is a measure of a stock's volatility in relation to the market. It essentially measures the relative risk exposure of holding a particular stock or sector in relation to the market.
Thus a beta greater than 1 indicates that the portfolio will move in the same direction as the market, and with a higher magnitude than the market. Stocks with betas above 1.0 are quite sensitive to systematic risk. The securities has an important systematic risk and there is low diversification benefit. What does this low diversification benefit mean in the case of a securities ?
CAPM enables us to measure the expected return of an asset. But what is the relationship between holding a diversified portfolio and the expected return of an asset?
It is a bit confusing for me the link between beta of an asset and the diversification benefit.
Thanks
