Description Term This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a nsk premium based on the market's risk premium and the security's beta coefficient. Beta coefficient The name given to the risk that cannot be diversifled away by adding additional assets to an Investment portfolio since it results from the systematic events and factors that affect all investments. Capital Asset Pricing Model Correlation coefficient (p) The general term that describes the portion of an asset's total expected return that is greater than the retum eamed on the market's risk-free rate. Diversification Equilibrium A measurement of the tendency of two variables to move together Expected rate of return Market risk The rate of return expected to be realized from an Investment calculated as the mean of the probability distribution of its possible returns Risk Risk premium The condition in which the expected rotum on a security equals is required return, and there is no pressure on its price to change Stand-alono rok The practice of creating a portfolio of assets for the purpose of reducing the stand-alone risk of the Individual assets in the portfolio The term applied to the risk of an asset that is measured by the standard deviation of the assers expected retums. Stand-alone risk A measure of the extent to which the retums on a given investment are correlated with the returns of a market portfolio Beta coalficient The potential for variability in the possible outcomes associated with an investment Risk