: A risk that affects a large segment of society at same time.
The indemnification and risk pooling properties of insurance facilitate commercial transactions and the provision of credit by mitigating losses as well as the measurement and management of non-diversifiable risk
The coefficient [[beta].sub.j] is the measure of the non-diversifiable risk
associated with wind and solar production at location j.
According to Sharpe (1970, p.77), some of the assumptions made for the development of the model are: (i) assets only remunerate non-diversifiable risk
; (ii) investors have homogeneous expectations with respect to the expected returns and the variance of returns; (iii) it is possible to invest and raise funds at the risk-free rate in unlimited quantities; (iv) absence of market imperfections; (v) investors are rational and make decisions solely in terms of expected returns and assets risk; (vi) investors are risk-averse selecting between two portfolios with the same expected return the one with the lowest risk.
In this sense, TPI is excess return as a percentage of non-diversifiable risk
or systematic risk, whereas the SPI is indexed on total risk (excess return relative to total firm risk).
[[sigma].sub.pt] is the variability in return consisting of diversifiable risk and non-diversifiable risk
. Treynor's Index ([T.sub.n]) measure is a reward to volatility of the portfolio.
where [S.sub.i.sup.2] is the variance of security i, total security risk, [S.sub.m.sup.2] is the variance of the stock market index, [S.sub.ei.sup.2] is the variance of the random factor of security i (model (3))--diversifiable risk, and [[beta].sub.i.sup.2] x [S.sub.m.sup.2] is the non-diversifiable risk
From a finance perspective, the distinction between pure and speculative risk blurs because the rate of return shareholders require depends on its non-diversifiable risk
(systematic risk) or core risk, which can include pure and speculative risk components, investors do not accept a lower rate of return for the stock of a firm that does, through a risk management program, what the shareholders can do for themselves at lower cost through portfolio diversification.
Next we examine whether the excess currency returns (deviation from UIRP) is due to non-diversifiable risk
The CAPM and related theories stress that a project's total risk comprises of two categories - diversifiable and non-diversifiable risk
. Non-diversifiable risk
is also called market risk because it is a function of general environmental conditions which affect an investment in the whole stock market, such as inflation and taxation and interest rate changes.
If option listing increases (reduces) non-diversifiable risk
, c would be positive (negative).