stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

Question

Quizplus · Accepted Answer

A well-diversified portfolio reduces the overall risk by spreading it across different stocks and asset classes. Therefore, the individual stock's beta may not be as relevant since its risk contribution may be smaller in the context of a larger portfolio. In contrast, an investor who holds only one stock is taking on more concentrated risk, making the stock's beta a more important measure of risk.

Stock's Beta Is More Relevant as a Measure of Risk