u/sathvik_741

I’m trying to understand beta more deeply in the context of CAPM, and I think I might be mixing up systematic vs unsystematic risk.

Here’s my current line of thinking:

•	Beta measures how volatile a stock is relative to the market

•	The market itself has a beta of 1

•	So if a stock has a beta different from 1 (say 1.5 or 0.8), I interpreted that difference as additional risk beyond the market

From this, I started thinking:

•	Since the market risk is “baseline” (systematic risk),

•	Any extra volatility compared to the market must come from the company itself

→ which made me assume that beta might be capturing unsystematic (company-specific) risk

But most explanations say:

Beta measures only systematic risk and ignores unsystematic risk

This is where I’m confused.

My questions:

1.	Why is beta considered purely systematic risk even when it differs from 1?

2.	Why isn’t the “extra volatility” (β ≠ 1) treated as company-specific risk?

3.	Where exactly does unsystematic risk show up if not in beta?

Would really appreciate a conceptual explanation rather than just definitions.