You are recalculating the risk of ACE stock in relation to the market index, and you find that the ratio of the systematic variance to the total variance has risen. You must also find that the ________.
A) covariance between ACE and the market has fallen
B) correlation coefficient between ACE and the market has fallen
C) correlation coefficient between ACE and the market has risen
D) unsystematic risk of ACE has risen

Question

Quizplus · Accepted Answer

The ratio of systematic variance to total variance is essentially a measure of how much of the stock's movements can be explained by movements in the market index, which is a key component of the beta coefficient. If this ratio has risen, it implies that a larger portion of ACE's variance is due to market movements, suggesting that its movements are more closely aligned with the market. This would mean the correlation coefficient between ACE and the market has increased, not decreased or related to changes in covariance or unsystematic risk in the ways described by the other options.

You Are Recalculating the Risk of ACE Stock in Relation