Understanding Risk: Systemic versus Idio...
Schill, Michael J.
Understanding Risk: Systemic versus Idiosyncratic
F-1973 | Published January 21, 2021 | 8 pages Technical Note
Collection: Darden School of Business
Product Details
Using the fictional situation of two brothers facing the challenge of managing a commodity business in central Africa, this note explores different metrics for risk and related considerations for investors. The note considers measures of volatility, including the difference between systematic risk and idiosyncratic risk, and how diversification reduces idiosyncratic risk. The note uses these concepts to motivate the foundations of portfolio risk assessment by rational investors and the theory of the capital asset pricing model.
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