Business Glossary

resulting from forces outside of a firm's control; also called nondiversifiable or noncontrollable risk. Purchasing power, interest rate, and market risks fall into this category. This type of risk is assessed relative to the risk of a diversified portfolio of securities, or the market portfolio. It is measured by the beta (b) used in the Certified in Financial Management (CFM). The systematic risk is simply a measure of a security's volatility relative to that of an average security. For example, b = 0.5 means the security is only half as volatile, or risky, as the average security; b = 1.0 means the security is of average risk; and b = 2.0 means the security is twice as risky as the average risk. The higher the beta, the higher the return required.