The risk of an individual security that will be compensated by the market depends upon the
A)standard deviation of that security.
B)covariance of that security with the market.
C)expected rate of return on that security.
D)security's historical variance.
E)industry most associated with that security.

Question

Quizplus · Accepted Answer

The risk of an individual security that will be compensated by the market depends upon the covariance of that security with the market. Covariance measures how much two random variables (such as a security and the market) change together. A high covariance means that when the market goes up, the security is likely to go up as well, and vice versa. Therefore, a high covariance indicates a greater risk that will be compensated by the market.

The Risk of an Individual Security That Will Be Compensated