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FIN 6404 notes - returns • It’s a measure of the...

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Notes Diversification -  Two stock move identically in live stock there is no benefit Market Risk  (Systematic Risk)-  is undiversifiable .This type of risk can not be diversified away Company- Unique risk  (unsystematic risk) - is diversifiable.  This type of risk can be reduced  through diversification. Company-Unique Risk A company’s labor force goes on strike A company’s top management dies in a plane crash As you add tocks to your portfolio company-unique risk is reduced Beta -a measure of market risk Specifically, beta is a measure of how an individual stocks returns vary with market 
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Unformatted text preview: returns • It’s a measure of the “sensitivity” of an individual stocks return The markets Beta is 1 • A firm that has a beta =1 has average market risk. The stock is no more or less volatile than the market • A firm with a beta 1 is maor evolatile than the market • A firm with a beta < 1 is less volatile than the market. Band- a contrack that has two parts: Coupon rate & maturity...
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