A stock’s contribution to the market risk of a well-diversified portfolio is cal

Question

A stock’s contribution to the market risk of a well-diversified portfolio is called ____________ risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. a) relevant b) unsystematic

TRUE OR FALSE

a) A stock that is more volatile than the market will have a beta of less than 1.0.

b) Beta measures the volatility in stock movements relative to the market.

c) Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market.

Explanation / Answer

Option a relevant or systematic risk.

A relevant or systematic risk is the risk that is common for all stocks and portfolios and this is why it cannot be eliminated through diversification. It remains the same even if any stock is added or removed. A stock’s contribution to the market risk of a well-diversified portfolio is therefore called market risk.

b) Beta measures the volatility in stock movements relative to the market is the correct.

Beta is the measure of market risk. It calculates the volatility in the stock relative to the market. If beta is greater than 1, it will move more than the market and if beta is less than 1, it will move lesser than the market.

rest of the statements( a and C) are false.

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