Systematic Risk vs Unsystematic Risk
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- เผยแพร่เมื่อ 8 ก.พ. 2025
- This video shows the difference between systematic risk (market risk) and unsystematic risk (firm-specific risk, diversifiable risk). Unsystematic risk results from events that have a unique effect on a firm's stock price (e.g., the CEO is fired) while systematic risk results from common shocks that affect all firms (the U.S. Federal Reserve decides to cut interest rates). When an investor chooses to invest in a portfolio of different stocks, the firm-specific risks average out (one firm has a good event, while another has a bad event); the volatility (a measure of total risk) of the portfolio declines as more firms are added. This process is known as diversification. Because investors can eliminate firm-specific risk through diversification, they do not require a risk premium for firm-specific risk. This leads to the conclusion that it is systematic risk which effectively determines the cost of equity capital for a firm. To measure a firm's sensitivity to systematic risk (market risk), we can examine a firm's beta. Once we know the beta, we can estimate the firm's cost of equity capital using the Capital Asset Pricing Model.
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more fun than reading my text book... thanks 🤑
Awesome video , thanks!
Consider stock XYZ, it got bought out with a 44% premium, or it discovered oil and moved up 19%. As you say, buying many stock XYZ's will average out these gains/losses, that is diversify out these volatilities. But what if one wants these volatilities? They don't cost anything?
God bless you
So clear
thanks a lot sir..really helpful
Brilliant! Thank you so so much
nice explanation.
very well explained.
Thanks
"...Amazon CEO involved in scandal." Lol from 2019, post Bezos affair. Definitely unsystematic.
Would a low Beta of a portfolio mean the higher its unsystematic risk?
No, not necessarily. Beta represents market risk. Just because there's less market risk doesn't mean there's more diversifiable risk; it's not a ratio.
Sound is kinda low
Amazon's CEO actually stepped back... haha
Sadly the video has become corrupt :(
Global economic slowdown - COVID19. Amazon - Grows exponentially
no, amazon stock's going down during the height of covid
doesnt help
SRC c