Term Description The portion of an asset's total expected return required by investors as compensation for assuming the additional risks associated with the security, the issuer, and the marketplace Bela coefficient The result of adding additional assets to a portfolio, when the returns of the individual assets are non- correlated Capital Asset Pricing Model Correlation coefficient (p) The mean of the probability distribution of an investment's possible returns, and the return expected to be realized from owning it Diversification Equilibrium The potential for variability in the possible outcomes associated with an investment, Expected rate of return Market 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 Risk premium That portion of an investment's risk calculated as the difference between its total risk and its firm- specific risk Stand-alone risk A measure of the extent to which the returns on a given investment are correlated with the returns of a market portfolio The condition in which the expected return on a security oqunis its required return, and there is no pressure on its price to change The risk of an asset when it is the only asset in an investor's portfolio Stand-alone risk A measurement of the tendency of two variables to move together Correlation coefficient (p)