Does Beta Measure Diversifiable Risk?

Thus, beta is referred to as an asset's non-diversifiable risk, its systematic risk, market risk, or hedge ratio. Beta is not a measure of idiosyncratic risk.

What type of risk does beta measure?

What Is Beta? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).

How do you measure Diversifiable risk?

This risk is also known as a diversifiable risk since it can be eliminated by sufficiently diversifying a portfolio. 1 There isn't a formula for calculating unsystematic risk; instead, it must be extrapolated by subtracting the systematic risk from the total risk.