Why is it only the covariance of an assets return with the return on the world market portfolio that determines whether there is a risk premium associated with the assets expected return ...

The uncertain part of an assets return can be broken into ...

Why is it only the covariance of an assets return with the return on the world market

Question:

Why is it only the covariance of an asset’s return with the return on the world market that determines whether there is a risk premium associated with the asset’s expected return?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...