Which of the following statements is CORRECT?
A) the characteristic line is the regression line that results from plotting the returns on a particular stock versus the returns on a stock from a different industry.
B) the slope of the characteristic line is the stock's standard deviation.
C) the distance of the plot points from the characteristic line is a measure of the stock's market risk.
D) the distance of the plot points from the characteristic line is a measure of the stock's diversifiable risk.
E) "characteristic line" is another name for the security market line.

Question

Quizplus · Accepted Answer

The distance of the plot points from the characteristic line represents the stock's diversifiable risk, as it indicates the variability of the stock's returns that is not explained by market movements.

Which of the Following Statements Is CORRECT