Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 115

Breaking down Disney’s Risk

! R Squared = 29 %

! This implies that

• 29 % of the risk at Disney comes from market sources


• 71 %, therefore, comes from firm-specific sources
  ! The firm-specific risk is diversifiable and will not be rewarded

This again is well in line with typical firms in the US. The typical firm has an R

squared of between 20-25%. Hence, the allure of diversification.