Do Treasury Bills have volatility or systematic risk? What is the difference ...
Do Treasury Bills have volatility or systematic risk? What is the difference between common risk (a.k.a. systematic risk) and independent risk (a.k.a. unsystematic risk) Why does common risk (a.k.a. systematic risk) affect all securities while independent risk (a.k.a. unsystematic risk) is unique to each firm and cannot be diversified away?static/image/hrline/1.gif
The treasury bills are backed by the full faith and credit of the US Government, hence it suffers from zero volatility or systematic risk.The systematic risk(common risk) uniformly affects all securities. As this risk cannot be diversified away, investors are compensated for this risk, in the form of higher return. The more riskier a security, in other words the security having a higher beta will have higher returns.Independent risk ( unsystematic risk) : this risk is unique to a particular security and be diversified away. This risk does not affect all securities uniformly and is specific to a particular security.Common risk is the market risk , so it uniformly affects all securities but unsystematic risk is unique to a particular stock and hence it cannot be diversified away either by asset allocation or by hedging.
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