Which of the following statements is CORRECT? A) the typical R² for a stock is about 0.94 and the typicalR² for a portfolio is about 0.6. B) the typical R²for a stock is about 0.3 and the typical R² for a large portfolio is about 0.94. C) the typical R² for a stock is about 0.94 and the typical R² for a portfolio is also about 0.94. D) the typical R² for a stock is about 0.6 and the typical R²for a portfolio is also about 0.6. E) the typical R² for a stock is about 0.3 and the typical R² for a portfolio is also about 0.3.

Question

Quizplus · Accepted Answer

Individual stocks typically have lower R² values, around 0.3, due to higher idiosyncratic risk, while large portfolios have higher R² values, around 0.94, due to diversification reducing idiosyncratic risk.

Which of the Following Statements Is CORRECT