Final answer:
Beta measures systematic risk, while standard deviation measures the total risk of an investment, capturing both systematic and unsystematic risk. Beta is concerned with market-related risk, whereas standard deviation reflects overall volatility, including firm-specific factors.
Step-by-step explanation:
Beta and standard deviation are both measures used to assess risk in finance, but they refer to different types of risk. Beta measures systematic risk, which is the risk inherent to the entire market or a market segment. Standard deviation, on the other hand, measures total risk, which includes both systematic and unsystematic risk. Unsystematic risk is unique to a specific company or industry.
Therefore, beta is a measure of a security's sensitivity to market movements and reflects the tendency of a security's returns to respond to swings in the market. A high beta implies greater market risk, whereas a low beta indicates less market risk. Conversely, standard deviation is a statistical measure that captures the overall volatility of a security's returns without distinguishing between systematic and unsystematic risk.
The difference between beta and standard deviation as risk measures is that beta measures only systematic risk, whereas standard deviation measures total risk. Beta represents the sensitivity of a stock or portfolio to market movements, while standard deviation measures the overall volatility of a stock or portfolio. Beta is a measure of how closely an investment's returns move in relation to the overall market, while standard deviation measures the dispersion of those returns around the average return.