139k views
2 votes
A stock with a beta equal to −1.0 has zero systematic (or market) risk.

a. True
b. False

1 Answer

4 votes
The statement above is FALSE.
A stock with a beta equal to -1 does not have zero systematic risk.
Systematic risk refers to the uncertainty that is inherent to the entire stock market segment; it is made up majorly of the daily fluctuations in the price of stocks. Beta is the measure of the systematic risk of a stock in comparison to the market as a whole. Beta is also used to compare a stock market risk to that of other stocks.
A stock with a beta value of -1 indicates that the stock price will be less volatile than the market. A stock with a beta value of 1 indicates that the stock price will move with the market.
User Keith Hanson
by
6.3k points