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

Question

Quizplus · Accepted Answer

A well-diversified portfolio reduces the overall risk of an investor's holdings by spreading investments across multiple stocks and asset classes. In this context, a stock's beta becomes a more relevant measure of risk as it indicates how much the stock's price movements are correlated with the overall market. On the other hand, an investor who holds only one stock is already exposed to the specific risks of that company and is therefore more concerned with its individual factors such as financial health, management, competition, and growth prospects.

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