Final answer:
Stockbridge Sprockets' stock, with a Beta of -0.5, would be expected to move inversely to the market; hence if the market rises by 10%, the stock would decrease by 5%. The Beta coefficient reflects the stock's movement in comparison to the market's overall direction.
Step-by-step explanation:
The Beta (β) is a measure of a stock's volatility in relation to the overall market. A Beta of 1 indicates that a stock's price moves with the market. A positive Beta means that a stock generally follows the market's trends, whereas a negative Beta suggests that a stock moves in the opposite direction of the market.
Therefore, Stockbridge Sprocket Inc.'s stock, which has a Beta of -0.5, tends to move in the opposite direction of the market but at half the magnitude. If the overall market or the market index, such as the Dow Jones Industrial or Standard & Poor's 500, increases by 10%, then based on the negative Beta value, Stockbridge Sprocket Inc.'s stock would be expected to move in the opposite direction; specifically, it would decrease by 5%. It is important to remember that Beta is just one measure of risk and should be used in conjunction with other metrics to evaluate investment decisions.