16655 Lecture Notes - Lecture 3: Real Estate Investment Trust, Market Risk, Sharpe Ratio
Document Summary
If i"m certain of how a stock/asset will behave relative to the market, i can buy more or less of it to reflect my risk appetite. If i"m risk averse, i"ll buy low beta stocks (they"re less volatile than the broader market) If i have a strong risk appetite, i"ll buy high beta stocks (they"re more volatile than the broader market) If beta is negative, i can use the market to hedge against movements in my stock (they move in the opposite direction to the broader market) When the yield is below the government bond rate, sell the asset. Systematic risk - market risks that cannot be diversified away. Interest rates, recessions and wars are examples of systematic risks. Unsystematic risk - this risk is specific to individual stocks and can be diversified away as the investor increases the number of stocks in his or her portfolio.
