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Santosh Mahato (CA student)     01 October 2010

Difference between systematic risk and Beta?

Dear friends,

 

Can any one tell me the difference between systematic risk and Beta security?

If beta is also systematic risk then why not we calculate beta when question ask for calculation of systematic risk?



 14 Replies

Joey Tribbiani

Joey Tribbiani (fdg)     01 October 2010

i think u want to say beta of a security

The β (beta) of a security is essentially a measure of the strength of the relationship between the price of a security and the market.

Where as systematic risk refers to variability in return on investment due to  market factors.

Hence u can say that beta is a measure for price vulnerability whereas systematic risk measure for for returns

1 Like
Santosh Mahato

Santosh Mahato (CA student)     01 October 2010

 

Originally posted by : A student
i think u want to say beta of a security
The β (beta) of a security is essentially a measure of the strength of the relationship between the price of a security and the market.
Where as systematic risk refers to variability in return on investment due to  market factors.
Hence u can say that beta is a measure for price vulnerability whereas systematic risk measure for for returns

My question is regarding Portfolio management of SFM Paper of CA final.

Your language is bookish language. can you clearify it in simple language.

Joey Tribbiani

Joey Tribbiani (fdg)     01 October 2010

Originally posted by : Santosh Mahato

 




Originally posted by : A student





i think u want to say beta of a security
The β (beta) of a security is essentially a measure of the strength of the relationship between the price of a security and the market.
Where as systematic risk refers to variability in return on investment due to  market factors.
Hence u can say that beta is a measure for price vulnerability whereas systematic risk measure for for returns






My question is regarding Portfolio management of SFM Paper of CA final.

Your language is bookish language. can you clearify it in simple language.

If i am not wrong there is nothing like Beta security in SFM,If there is smthng lyk dat,den plz clarify

Santosh Mahato

Santosh Mahato (CA student)     01 October 2010

How can you say that there is nothing like beta security in SFM, if you are a CA final student.

 

We will study it in Portfolio management

Formula:

Beta security = Co-variance between security & market / variance of market


Gunjan Mittal

Gunjan Mittal (article)     01 October 2010

Systematic risk is basically effect of economy on the entire market and Beta is a measure to control that risk.

Joey Tribbiani

Joey Tribbiani (fdg)     01 October 2010

Originally posted by : Santosh Mahato

How can you say that there is nothing like beta security in SFM, if you are a CA final student.

 

We will study it in Portfolio management

Formula:

Beta security = Co-variance between security & market / variance of market


 

there is a mis print in ur book,the formula u r qouting is of calculating BETA "OF" A SECURITY

Santosh Mahato

Santosh Mahato (CA student)     01 October 2010

ok dear

Beta security and beta of a security is the same thing

1 Like
CA Nagendra

CA Nagendra (CA)     01 October 2010

 

Systematic risk is the risk associated with aggregate market and it is due to factors that affect the entire market. Some of the factor is:  recession, Wars, Change is Taxation provision, foreign investment policy, Inflation etc.

 

This risk is beyond the control of investor and hence cannot be mitigated through diversification.

 

We can say that the risk of failing CA Student due to the reduced “%” result by ICAI is Systematic risk for CA Student and it cannot be reduced by students own effort.

 

Unsystematic risk is the risk specifically associated with company/industry and it is due to factors specific to a company/industry.

Some of the factor is: abour strike, Product category, marketing strategy, research & development etc.

Unsystematic risk can be mitigated through portfolio diversification.

 

We can say that the risk of failing CA Student due to inadequate and unbalanced preparation of all subjects is Unsystematic risk for CA Student and it can be reduced.

 

 

Beta is a measure of firm’s systematic risk or non diversifiable risk. The sensitivity of a security to market movements is called Beta. In India, market is represented by SENSEX and NIFTY. 

 

Answer to your 2nd question:

Even β measures systematic risk, we do not calculate β when question ask for calculation of systematic risk. Because we have to calculate systematic risk in “%” term. But β is in times term.

Suppose, EBT is 1.5 times of EAT, and EAT is 12% then what is EBT?

Here, EBT = EBT X EAT

i.e. EBT = (1.5 X 12%) = 18%.

Similarly, if beta is 1.5 times; means systematic risk is 1.5 times of market risk σ market

Hence, Sys Risk = σ2market X β2sec.

 

2 Like
Max Payne

Max Payne (employed)     01 October 2010

Originally posted by : A student
i think u want to say beta of a security

The β (beta) of a security is essentially a measure of the strength of the relationship between the price of a security and the market.

Where as systematic risk refers to variability in return on investment due to  market factors.

Hence u can say that beta is a measure for price vulnerability whereas systematic risk measure for for returns

 

Santosh Mahato

Santosh Mahato (CA student)     01 October 2010

Thanks a lot sir

I am really so happy from your answer.


Thanks again sir.................. please share in future also.

Joey Tribbiani

Joey Tribbiani (fdg)     01 October 2010

Originally posted by : Santosh Mahato

ok dear

Beta security and beta of a security is the same thing

mere bhai,agli baar post me baat puri likhna. Actually i hv completed SFM n u being so confident of this beta security concept that kuch der k liye main dar gaya aur sochne laga ab kaunsi book se karu. Pz bhai,dil ka kamzor admi hu ;(

1 Like
Santosh Mahato

Santosh Mahato (CA student)     02 October 2010

@ a student Ok dear I will care in future
Punit Gupta

Punit Gupta (Advocate and Consultant-Tax Finance & Investments)     02 October 2010

Dear Santosh Mahato, hope you might have got the answer. if not, read this; Beta of any security is the measure of variablity with respect to certain index or underlying base. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market
bharat Puppala

bharat Puppala (apprentice)     28 February 2012

Systematic risk, is the non-diversifiable portion of risk. Its statistical formula is (s.d) multiplied by Corr Coeefficient of stock and market.

Beta is the relative measure of this systematic risk of any stock in relation to systematic risk of market. That is why its value will be the above calculated value divided by S.D of market                                                      (s.d of stock/s.d of market   * Corr)

Beta, precisely is not systematic risk absolutely. It is relative to market risk. That is why we multiply Beta with market risk premium to obtain stock's risk premium.

Got it?


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