Financial Risk Manager Part 1
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A beta close to zero indicates:
Other
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TTanishq
A
A stock with a less stable return than the market as a whole.
B
A stock with a more stable return than the market as a whole.
C
An ETF replicating the corporate bond market.
D
A stock with historically higher returns compared to the market as a whole.
Explanation:
Explanation
A beta close to zero indicates a stock with a more stable return than the market as a whole. Beta is a measure of a stock's volatility in comparison to the market as a whole:
- Beta = 1: Stock moves with the market
- Beta < 1: Stock is less volatile than the market
- Beta > 1: Stock is more volatile than the market
- Beta ≈ 0: Stock has very low correlation with market movements, indicating more stable returns
Why other options are incorrect:
Choice A: Incorrect - A beta close to zero actually indicates more stability, not less stability.
Choice C: Incorrect - While bond ETFs may have low betas, this doesn't define what a beta close to zero indicates for stocks specifically.
Choice D: Incorrect - Beta measures volatility/correlation, not historical returns. A low beta doesn't indicate higher historical returns.
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