Question

Make distinctions between the standard deviation and beta in the measurement of risk in the capital market. Which one of these two metrics (standard deviation and beta) is relevant for measuring the risk of well-diversified portfolio? Explain why.

Answer 1

Standard deviation will be reflecting the derivation of a stock return from the mean which is historical mean

Beta will be the reflection of the volatility of the company in respect to the overall market and beta will be trying to reflect how volatile a company is.

standard deviation is also known as a measure of overall portfolio risk whereas beta is known as a measure of the systematic risk of a Portfolio and beta is used for calculations in Capital Asset pricing model which can be reflected through systematic risk

I think standard deviation is always the measure for measuring the the risk associated with well diversified portfolio because standard deviation will help you measuring the overall risk of a Portfolio and it will include the firm specific risk also.