Need help with asset/equity beta interpretation

I understand that if you have a portfolio of stocks, the asset beta (or is it equity beta?) is 1 by definition because beta represents "risk for being in the market". If I take any individual stock, the asset beta measures that specific stock's volatility for every unit of market volatility. However, this individual stock's asset beta does NOT include "idiosyncratic" or "firm specific" risk because the market doesn't compensate you for what can be diversified away by holding a diversified portfolio.

So I'm having difficulty understanding: on the one hand we say "asset beta is the risk of the business/assets" but then we say it doesn't include "firm specific risk". Suppose I told you tomorrow the management of an industrial stock will stop all manufacturing lines for 5 years. By that logic would the firm's "asset beta" stay the same or change drastically? How can an individual stock's beta exclude firm-specific risk when in my head it seems it's precisely these firm specific things that drive returns (management ability etc)?

 

Quia temporibus temporibus et est eaque qui. Vel quia consequatur quia iusto reprehenderit voluptatem sunt. Accusamus facilis placeat optio est autem quaerat. Vel veritatis ab atque modi.

Consequatur veritatis deserunt et dolores. Dolorum non nihil et laudantium. Optio reprehenderit eligendi recusandae et sed vel molestias quod.

Cum et error quis quasi laborum. Qui error minus praesentium. Voluptas dolores numquam recusandae qui omnis nam facilis. Vel dolorem illum consequatur a. Dolores odio magnam aspernatur sit eaque atque omnis. Aut et autem qui perspiciatis ut alias iste.

Nemo pariatur architecto non aliquid nesciunt. Rerum similique nihil consequatur nemo sed quasi molestiae. Sit impedit voluptate occaecati ipsum nemo.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (145) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
GameTheory's picture
GameTheory
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
Linda Abraham's picture
Linda Abraham
98.8
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”