Systematic risk

Systematic risk (risque systématique) is the market-wide, non-diversifiable component of an asset's total risk — measured by beta in the CAPM framework. A beta of 1.0 means the asset moves in line with the market; above 1.0 it is more volatile; below 1.0 it is less market-sensitive. In theory, systematic risk is the only risk compensated by the market — justifying that only the systematic risk premium (not total risk) feeds the cost of equity in the WACC. Company-specific risk is handled separately through the SCRP.

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Example: a Swiss industrial SME has an unlevered beta of 0.85 (below market — low cyclicality). Re-levered to its target capital structure (40% gearing, 14% tax rate), the equity beta rises to 1.10. Applied in CAPM with a market risk premium of 6.5%, the systematic risk premium is 1.10 × 6.5% = 7.15% — the main driver of the 10.6% cost of equity before size and specific risk adjustments.

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At Hectelion, the distinction between systematic risk (captured via beta) and specific risk (captured via SCRP) is rigorously applied in every WACC construction.