Portfolio Management

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15. How to Calculate ß arket Risk or Systematic Risk

ßi = Beta of Asset `i`

ßi = COV ( ri, rm) Return of Market Portfolio

σm2 Variance of Market Portfolio

Equate value of Covariance :

ßi = σi ri,m Total Risk of `i` × Correlation Coefficient with `m`

σm Total Risk of `m`

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ß =

ß with market risk of asset `i` with respect to market risk of `m` (index). Therefore it measures relative Systematic risk (or market risk) [Beta is not an absolute measure of risk]

Systematic Risk of `i`

Systematic Risk of `m`