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Dear tutor,
Is the “standard derivation of total equity return” means the “systematic risk” of a company?
I am confused when attempting to question 6-Merchart Bank on page 156 of the tutorial lecture note (PDF). From the answer, it calculated beta by: covariance (company and market) / variance of market.
My question is why not: beta = standard deviation of company / standard deviation of market?
Would you please advise what is the difference to calculate beta by the following formula:
1. Beta = systematic risk of company / systematic risk of market; and
2. Beta = covariance (company and market) / variance of market.
Thansk a lot!
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