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Unformatted text preview: Because the total risk of a portfolio is only the sum of its non diversifiable and diversifiable risk and a fully diversified portfolio will only have non diversifiable risk. 4. What does beta measure? How do we use beta? Beta measures the expected change and the return of a security or a portfolio, relative to a change in the market return. It also measures only the non diversifiable risk of a portfolio or a security. The higher the beta is, the riskier the security or the portfolio will get. 5. What relation is described by the security market line? Security market line describes the relation between the required return and each level of beta and it is a graphical representation of the capital asset pricing model. References: http://wps.aw.com...
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- Spring '11
- Capital Asset Pricing Model, security market line, non diversifiable risk