Final answer:
A high-beta security outperforms the market during market upswings and underperforms during downturns. The level of risk relates to the volatility, and high risk can be detrimental in market downturns, yet potentially rewarding over the long term.
Step-by-step explanation:
A security with high beta (greater than 1.0, indicating high volatility) tends to outperform the market when the market is rising, and underperform the market when the market is declining. Conversely, a security with low beta (less than 1.0) would likely outperform when the market is declining and underperform when the market is rising, as it's less volatile than the market.
High risk levels in an investment portfolio have been detrimental historically during times of market downturns or economic crises because high-beta stocks tend to lose more value in these periods. For instance, during the 2008 financial crisis, high-beta stocks experienced significant declines.
However, over a sustained period, stocks, which are generally higher risk than bonds, tend to yield higher returns, given the potential for growth and capital appreciation.A security with high beta (>1.0, high volatility) amplifies the market when it is rising and decrease the market when it is falling. Vice versa, a security with low beta attenuates the market when it is rising and enhances the market when it is falling.