1. avatar says

    Hi Mr Moffat,

    Is the risk which we calculated using the standard deviation in the previous lectures, is it systematic risk based on the assumption of diversified portfolio? Or it is the total risk, also used in calculation of systematic & unsystematic risk (? total2 = ?systematic2 + ?unsystematic2)?
    My apologies the formula above is not so clear.

    Soud Said.

    • Profile photo of John Moffat says

      I do not think I ever said you don’t round up but round down! You must have misheard me.

      We usually quote beta to two decimal places.

      Where rounding is involved (anywhere in the exam) you round up or down to the nearest number. (If it is .5 then it doesn’t matter whether you go up or down :-) )

  2. Profile photo of blackpaddy says

    I hope i’m corrrect when i add that they are thesame. Use of the two terms arises when comparing risk of one sector (e.g petroleum) against that of the market as a whole.
    somebody please correct me if i am wrong.

      • Profile photo of yelen says

        Beta is systematic risk divided by market risk. In the example 2 systematic risk is 8%, market risk is 10%
        So they are not the same..

      • Profile photo of kateker says

        @yelen, In this context, the systematic risk is the individual company’s risk, and the market risk refers to the whole companies’s risk in the stock exchange.

        The difference is only about the amount but nature is the same.

      • Profile photo of John Moffat says

        @kateker, You are correct that the nature is the same, but be careful about the wording.
        “Market risk” is the risk of the stock exchange as a whole (i.e. the average of the risks of all shares on the stock exchange).
        The “systematic risk” of a particular share is that risk due to general economic factors (and risk due to factors peculiar to the company – “unsystematic risk” is ignored on the assumption shareholders have well-diversified portfolios.

        (The risk of the market as a whole is only systematic because the market as a whole is perfectly well diversified).

        Some shares have higher systematic risk than the market, and some have less. The risk of the market is the average of all of them.

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