Financial Risk Manager Part 1

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.