Which of the Following Statements About Beta and Risk Is

question 35

Multiple Choice

Which of the following statements about beta and risk is correct?

• A) A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities.
• B) If the returns of two firms are negatively correlated, one of them must have a negative beta.
• C) 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.
• D) 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.
• E) 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.

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