Which of the following statements about beta and risk is correct? A stock\'s bet
ID: 2788831 • Letter: W
Question
Which of the following statements about beta and risk is correct?
A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.
A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities.
If the returns of two firms are negatively correlated, one of them must have a negative beta.
If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation equal to that of the individual stocks.
Combining stocks with perfectly positively correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification
a.A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.
b.A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities.
c.If the returns of two firms are negatively correlated, one of them must have a negative beta.
d.If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation equal to that of the individual stocks.
e.Combining stocks with perfectly positively correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification
Explanation / Answer
Answer:
The statement that is correct about beta and risk is option C
C. if the returns of two firms are negatively correlated, one of them must have a negative beta.
As, stock beta is relevant to everyone irrespective of holding one individual stock or a portfolio and security beta measures undiversifiable risk. Also zero correlation coefficient between stocks means they dont have any relationship and combining stocks with perfectly positive correlation gends to behave in the same direction and thus are more risky.
Answer:
The statement that is correct about beta and risk is option C
C. if the returns of two firms are negatively correlated, one of them must have a negative beta.
As, stock beta is relevant to everyone irrespective of holding one individual stock or a portfolio and security beta measures undiversifiable risk. Also zero correlation coefficient between stocks means they dont have any relationship and combining stocks with perfectly positive correlation gends to behave in the same direction and thus are more risky.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.