FNCE30001 Study Guide - Final Guide: Scatter Plot, Standard Deviation, Systematic Risk
21 Nov 2018
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0. 2: both will have the same impact. The total variance will increase from 0. 18 to. 0. 1989: an increase in beta also increases the correlation coefficient. This decreases the diversification benefit and therefore increases portfolio standard deviation. A scatter plot results in the following diagram. The slope of the regression line is 2. 0 and the intercept is 1. 0. The return-beta relationship of the single index model is given by: i. Therefore we have 7% 0 i e m. Beta can be found by using the equation. The standard deviation of each stock can be derived from the following equation for. The firm-specific risk of a is its total risk less its systematic risk. Hence, the firm-specific risk of a = 0. 049 0. 0196 = 0. 0294. Hence, the firm-specific risk of b = 0. 6615 0. 0992 = 0. 5623. The correlation is the square root of r2. I = ri [rf + i(rm rf ) ]
