Which of the following statements is true?
A)Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio.
B)Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio.
C)Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio.
D)Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio.

Question

Quizplus · Accepted Answer

Systematic risk reflects the co-movement of a stock with the market portfolio, which is measured by the stock's beta, i.e. the sensitivity of the stock's returns to the market returns, and the volatility of the market portfolio. Vega is a measure of the option's sensitivity to changes in the implied volatility of the underlying asset, and is not relevant in measuring systematic risk. Unsystematic risk, on the other hand, is idiosyncratic to the stock and can be diversified away through portfolio diversification, and is not related to the co-movement of the stock with the market portfolio.

Which of the Following Statements Is True