Hey guys,
We all know that std dev = systematic risk (beta) + unsystematic risk (company risk). Lets say we have a well diversified portfolio and that we have removed unsystematic risk, is it safe to say that std dev = beta when portfolios are well diversified?
Standard deviation of returns does not equal beta, even in the absence of unsystematic risk.
Some obvious clues are that:
- Standard deviation of returns is nonnegative, whereas beta can be negative
- Standard deviation of returns is usually expressed as a percentage of portfolio value, whereas beta is simply a number (i.e., it is unitless)