Systematic Risk and Idiosyncratic Risk: Their Application in the Capital Asset Pricing Model and Modern Portfolio Theory

This article aims to summarize the previous researches, and explore the application of Systematic Risk and Idiosyncratic Risk in CAPM model. The paper talks about Critical Analysis of CAPM Assumptions, Beta Calculation and Interpretation, and gives some Examples from Empirical Data to analyze the authors main viewpoints toward the application of systematic risk and idiosyncratic risk. In summary, this research underscores the significance of systematic risk in the context of calm market conditions and offers valuable insights for both academic and practical domains. It lays the groundwork for future studies and applications that aim to enhance risk management and investment strategies in the face of ever-evolving financial landscapes. And the paper recommends that future research should delve deeper into the mechanisms of systematic risk during periods of market calm. It suggests exploring the application of advanced risk assessment tools and the development of dynamic investment strategies that can adapt to changing market conditions.