Which of the following statements is most correct?
A) A portfolio with a beta of minus 2 has the same degree of risk to its holder,relative to the market,as a portfolio with a beta of plus 2.However,the holder of either portfolio could lower his or her risk exposure by buying some "normal" stocks.
B) A stock with a beta of −1.0 has zero systematic (or market)risk.
C) It is possible for a stock to have a positive beta even in situations where the correlation between the returns on it and those on another stock are negative.
D) Diversifiable risk,which is measured by beta,can be lowered by adding more stocks to a portfolio.
E) Statements a and c are both correct.

Question

Quizplus · Accepted Answer

Statement A is correct because a portfolio with a beta of -2 is as sensitive to market movements as a portfolio with a beta of +2, but in the opposite direction. Adding "normal" stocks (with a beta close to 1) can indeed reduce the portfolio's overall sensitivity to market movements. Statement C is also correct because a stock can have a positive beta if its returns generally follow the market's returns, even if it sometimes moves in the opposite direction to another specific stock. Beta is a measure of a stock's volatility relative to the market, not necessarily its correlation with other individual stocks.

Which of the Following Statements Is Most Correct