Which of the Following Statements Is Correct

question 33

Multiple Choice

Which of the following statements is correct?

• A)A security's beta measures its diversifiable (firm-specific) 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 that are perfectly negatively correlated and that have the same beta coefficient into a portfolio is riskier than holding an individual stock, because the portfolio will not benefit from diversification.
• E)A stock's beta can be calculated by comparing its returns to the market's returns over some time period because the beta coefficient measures a stock's volatility relative to market.

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Definitions:

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