Which one of these statements related to beta is correct?

Question

Quizplus · Accepted Answer

Beta measures the risk of a single security if held in a large, diversified portfolio. Beta measures the sensitivity of a security's returns to the overall market returns. A beta of 1 indicates that the security's returns move in line with the market. A beta greater than 1 indicates that the security's returns are more volatile than the market, while a beta less than 1 indicates that the security's returns are less volatile than the market. Thus, statement A is incorrect, statement B is also incorrect as higher beta means higher market risk, statement D is incorrect as beta measures only systematic risk and not total risk, and statement E is incorrect as beta measures the relationship with the market, while standard deviation measures volatility.

Which One of These Statements Related to Beta Is Correct