Stock A moves up when the portfolio moves up and down when the portfolio moves down. Stock B moves down when the portfolio moves up and up when the portfolio moves down. A and B move up and down about the same amount.
A)A and B are equally risky in a portfolio sense.
B)A is risky because it adds risk to the portfolio, B is not risky because it reduces the portfolio's risk.
C)A's risk can be diversified away.
D)A has some of the personality of B.

Question

Quizplus · Accepted Answer

Stock A is risky because it moves in the same direction as the portfolio, potentially increasing its volatility. Stock B, on the other hand, moves inversely to the portfolio, which can help reduce overall portfolio risk.

Stock a Moves Up When the Portfolio Moves Up and Down