Risk The mean of the probability distribution of an investment's possible returns, and the return expected to be realized from owning it. Expected rate of return The result of adding additional assets to a portfolio, when the returns of the individual assets are non-correlated. Beta coefficient A measure of the sensitivity of a security's returns to fluctuations in the return earned by the market portfolio. Market risk This statistical measure, which is calculated by dividing the standard deviation of an investment's returns by its mean, or expected return, represents a security's risk per unit of return. Coefficient of variation That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Stand-alone risk This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Risk premium The potential for variability in the possible outcomes associated with an investment. Diversification The condition of price stability that results from the equality of a security's expected and required returns. Capital Asset Pricing Model The general term that describes the portion of an asset's total expected return that is greater than the return earned on the market's risk-free rate. Equilibrium The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns