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S is an efficient portfolio with volatility of return equal to that of the market portfolio....

S is an efficient portfolio with volatility of return equal to that of the market portfolio. What is the beta and the idiosyncratic volatility of portfolio S?

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Expert Solution

Beta of portfolio S is a measure of volatility or systematic risk of a portfolio in comparison to the entire market.Beta of portfolio S is 1 means that portfolio is neither more volatile nor less volatile than the wider market.Beta more than 1 indicates greater volatility and beta less than 1 indicates less volatility.Beta is a measure of portfolio risk in relation to the market.

Systematic risk can be estimated by Beta .The idiosyncratic risk is the portion of risk unexplained by Beta.Idiosyncratic volatility is part of total volatility that cannot be explained by market returns .This risk is not correlated to market risk and unique to portfolio

jeff jeffy answered 2 years ago
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