The sensitivity of a stock's return to movements in the market is dependent upon I) the value of the reward-to-risk ratio
II. the volatility of the stock in relation to the market
III. the correlation of the stock's return to that of the market
IV. the expected return of the stock
A) I, III
B) II, IV
C) II, III
D) II, IV.
E) II, III, IV

Question

Quizplus · Accepted Answer

The sensitivity of a stock's return to movements in the market is dependent upon the volatility of the stock in relation to the market (II) and the correlation of the stock's return to that of the market (III). The value of the reward-to-risk ratio (I) and the expected return of the stock (IV) do not necessarily determine the stock's sensitivity to market movements. Therefore, the correct choice is C) II, III.

The Sensitivity of a Stock's Return to Movements in the Market