Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the market?

Question

BlackTom AI · Accepted Answer

The question asks which measure quantifies the amount of systematic risk in a risky asset relative to the market.
Option 1: beta. This is the correct measure because beta captures the asset's sensitivity to market movements, i.e., the systematic risk, by relating the asset's returns to the market returns. A beta greater than 1 indicates higher systematic risk than the market, while a beta less than 1 indicates lower systematic risk.
Option 2: reward-to-risk ratio. This term typically refers to a ratio used in performance or portfolio analysis (e.g., comparing expected reward to risk), but it does not measure systematic risk relative to the market. It is not a direct statistic of market-related risk.
Option 3: risk ratio. This is a generic term that does not have a standard, specific meaning in finance for measuring systematic risk against the market. Without a defined context, it cannot be taken as the measure of market-related risk sensitivity.
Option 4: standard deviation. While standard deviation measures total or total-variance risk (the overall volatility of an asset's returns), it does not isolate or quantify the portion of risk that is due to market movements (systematic risk) relative to the market. It includes both systematic and unsystematic components.

Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the market?

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