The market risk associated with an individual stock is most closely identified with the:
A) variance of the returns of the stock.
B) variance of the returns on the market.
C) beta of the stock.
D) beta of the market.

Question

Quizplus · Accepted Answer

The market risk of a stock is measured by its beta, which measures the stock's volatility relative to the broader market. A beta of 1 means that the stock is just as volatile as the market, while a beta greater than 1 means that the stock is more volatile than the market. Therefore, the variance of the returns of the stock (A) and the variance of the returns on the market (B) are not as closely associated with market risk as the beta of the stock (C). The beta of the market (D) is also not as closely associated with the market risk of an individual stock.

The Market Risk Associated with an Individual Stock Is Most