The market risk is measured by a Beta, that is the sensitivity to market movement. Beta= covariance with market/variance of market
the risk of a well-diversified portfolio is proportional to the portfolio beta (average of the weighted individual betas)
A security’s contribution to the risk of a well diversified portfolio depends on how the security is liable to be affected by a market decline. This sensitivity is called beta. It is the amount that investors expect the stock price to vary for each additional 1 % variation in the market.
The standard deviation of a well diversified portfolio is proportional to its beta.
Value additivity: the value of the whole must equal the value of each part. Consistent with the idea that diversification does not increase the value of the company.

Risk and return >>