Essay Examples on Askham Bryan College

2 Beta and Non systematic Risk

The risk of a portfolio consists of systematic risk beta and non systematic risk Beta measures the volatility or systematic risk of an asset or a portfolio relative to the benchmark as a whole It is generated by regressing the return of individual security or the portfolio on the return of NZX50 The returns are 3 year monthly returns for each security and NZX50 Table 2 below shows the comparison between stock or portfolio beta and the benchmark beta Since the benchmark beta is 1 a beta greater than 1 indicates the market risk of the portfolio is bigger and vice versa The portfolio beta is 1 18 meaning it is more volatile than NZX50 As Keith is identified to have an above average risk tolerance so the portfolio is expected to be more risky than the market index in order to achieve a high excess return Unsystematic risk is associated with factors related to a particular firm It can be diversified as the number of securities increases in a portfolio 

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