Question

Standard deviation measures _____ risk while beta measures _____ risk.
a. systematic; unsystematic.
b. unsystematic; systematic.
c. total; unsystematic.
d. total; systematic.
e. asset-specific; market.

Answer 1

Answer: d. total; systematic.

Explanation:

Standard deviation deals with total risk which includes both systematic and unsystematic risk. Unsystematic risk can be diversified away as it is associated with more specific securities.

Beta on the other hand measures systematic risk which relates to an entire industry or market or even segment and shows how securities move in relation to market risk which is represented by a beta of 1.