According to the CAPM, only systematic risk affects the required return on a given stock because: The standard deviation of a given stock return depends ONLY on the systematic risk. The standard deviation of a given stock return does NOT depend on the systematic risk. Systematic risk CANNOT be substantially reduced by holding a well-diversified portfolio. Systematic risk is used to measure the risk of common equity, while unsystematic risk is used to measure the risk of bonds and preferred shares. It is almost impossible to measure the unsystematic risk.