If beta is thought to be the appropriate measure of risk, a stock's risk-adjusted returns should be determined by the Sharpe index.

Question

Quizplus · Accepted Answer

The Sharpe Ratio is used to measure the risk-adjusted return of an investment, but it does not specifically use beta as its measure of risk. Instead, it uses the standard deviation of the portfolio's excess return over a risk-free rate. Beta, as a measure of risk, is more closely associated with the Capital Asset Pricing Model (CAPM) for determining expected returns based on the market risk.

If Beta Is Thought to Be the Appropriate Measure of Risk