In a stock market, a riskier stock typically has:
A)a higher covariance with the market as a whole.(True Answer )Correct
B)a lower covariance with the market as a whole.
C)a higher correlation with some stocks and a lower correlation with other stocks.
D)a lower correlation with the market as a whole.

Question

Quizplus · Accepted Answer

A riskier stock typically has a higher covariance with the market as a whole. Covariance measures the extent to which two variables move in the same direction. In the case of stocks, it measures the extent to which a stock moves in the same direction as the broader market. A higher covariance means that the stock is more sensitive to changes in the market, and therefore, is considered riskier.

In a Stock Market, a Riskier Stock Typically Has