Finance Essay Example | Topics and Well Written Essays - 2500 words - 6

Finance - Essay Example As far as unsystematic risk is concerned, it can be defined as a type of risk which can affect each and every investment (Stulz 2003). Unlike systematic risk, unsystematic risk can be called as a specific risk. It does not take into its captivity the whole system but affects in chunks. Unsystematic system is less threatening as compared to systematic risk. Due to this risk, the prices can be altered because of the specific security measures in comparison to the whole system or the whole market (Stulz 2003). Systematic risk cannot be escaped fully but unsystematic risk can be escaped fully if proper measures are taken (Stulz 2003). Systematic risk is also regarded as the only relevant risk because it is the one, which cannot be escaped. Systematic risk affects the organization, market and the whole system to a great extent and its affect is a must (Stulz 2003). Systematic risk is regarded as the only relevant risk because it can only be reduced by the four ways which are avoidance, retention, reduction and transfer but it cannot be ended wholesomely (Stulz 2003). In the context of the Capital Asset Pricing Model (CAPM), beta coefficient can be defined as a key parameter. It is employed for the measurement of part of the asset’s statistical variance (Crosson and Needles 2008). The asset’s statistical variance cannot be lessened by means of the diversification, which is provided by the portfolio of the risky assets. The reason as to why it cannot be lessened by means of diversification is that it forms a relationship with the assets that can be retrieved back in the portfolio (Hussey 1991). Only those companies can make use of the beta coefficient that are making use of the regression analysis (Feibel 2003). When a beta can be seen in a portfolio, it means that the management is seeing some risks with the investment and is showing their willingness to take risk. The betas can be obtained when the management is ready to take the risks