A Stock That Has a High Covariance with Market Conditions

question 125

Multiple Choice

A stock that has a high covariance with market conditions is considered risky because:

• A) the stock belongs to a small company.
• B) the stock does not fluctuate in value.
• C) the stock moves against the market.
• D) when the market is declining that stock will decline too.

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Definitions:

Comparative Advantage

The capacity of a party to produce products or services with a lesser opportunity cost compared to others.

Opportunity Cost

The cost of the next best alternative foregone when making a decision.

Specialization

A focus on a narrow area of knowledge or skill, leading to greater efficiency and expertise in that area.

Farmer

An individual who engages in the act of agriculture, raising living organisms for food or raw materials.