Which Is the Best Measure of Risk for an Asset

question 5

Multiple Choice

Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

• A) Standard deviation; correlation coefficient.
• B) Beta; variance.
• C) Coefficient of variation; beta.
• D) Beta; beta.
• E) Variance; correlation coefficient.

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Definitions:

Adjusted Beta

A measurement that accounts for potential changes in the volatility or risk of a stock's returns, used to better predict future performance by adjusting historical beta values.

Single Index Model

A simplified methodology to estimate the returns of a security or portfolio using the performance of a single market index to explain the returns.

Actual Return

The actual gain or loss on an investment, expressed as a percentage of the investment's initial cost.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often based on government bonds.