The relationship between the overall market and a specific firm's beta may change significantly if a large sector of stocks that make up the overall index increase or decrease substantially.

Question

Quizplus · Accepted Answer

This statement is true. Beta measures a stock's volatility in relation to the overall market, but the market itself is constantly changing. If a large sector of stocks within the overall index experiences a significant move, it can impact the correlation between the specific firm's beta and the overall market.

The Relationship Between the Overall Market and a Specific Firm's