Systematic risk is the risk that affects a security or portfolio due to its relationship with the market. Systematic risk cannot be reduced through portfolio diversification since this risk is associated with the overall market sentiments, rather than the performance of a few stocks. This article calculates the systematic risk of the shares of a sample of ten pharmaceutical companies and compares the relationship between the stock returns and the market returns.

The objective of any investor is to maximize the returns from investments, subject to various constraints, primarily risk. Return is the motivating force inspiring the investor to make any investment. Calculating returns from an investment is the most important aspect and the following points support it:

Return and risk are two sides of a coin. Nobody will talk about return without knowing about the risk. Risk includes systematic risk and unsystematic risk. The present study is undertaken to calculate the proportion of systematic risk and unsystematic risk in the returns from the shares of select pharmaceutical companies listed on the BSE. There are 219 listed pharmaceutical companies on the trading platform of the Bombay Stock Exchange (BSE). From South India, 50 pharmaceutical companies trade on the BSE. A 20% sample has been drawn for the present study. The period of the study is 10 years starting from April 1999 to March 2009. The sample of 10 pharmaceutical companies include:

The rate of return is the total return the investor receives during the holding period (the period when the security is owned or held by the investor). In other words, it is the income from the security in the form of cash flows and the difference in the price of the security between the beginning and end of the holding period expressed as a percentage of the purchase price of the security at the beginning of the holding period. The general equation for calculating the rate of return is shown below

Portfolio Organizer Magazine, Pharmaceutical Companies, Investment Risk, Systematic Risk, Bombay Stock Exchange, BSE, Stock Returns, Mathematical Probabilities, Market Portfolio, Stock Exchange Index, Market Returns, Secondary Markets, Pharmaceutical Stocks.