Which of the following statements is correct?
A)A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.
B)If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.
C)Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio.
D)A security's beta measures its nondiversifiable, or market, risk relative to that of an average stock.

Question

Quizplus · Accepted Answer

Beta is a measure of nondiversifiable or market risk. It measures how a stock's returns move relative to the market returns. Beta has no relation to diversifiable risk or a well-diversified portfolio. It only measures the risk inherent in the overall market.

Which of the Following Statements Is Correct