Question

The covariance between the stock and the market index's returns divided by the variance of the market index's returns represents the ______ for a company's stock.

a) Beta
b) Alpha
c) R-squared
d) Gamma

Answer 1

The division of the covariance between a stock and market index's returns by the market index's variance calculates the stock's beta, which is a measure of its volatility in comparison to the overall market.

Step-by-step explanation:

The covariance between the stock and the market index's returns divided by the variance of the market index's returns represents the beta for a company's stock. The beta coefficient measures the volatility of a stock in relation to the overall market. A beta of 1 indicates that the stock's price tends to move with the market. A beta greater than 1 indicates that the stock is more volatile than the market, and a beta less than 1 indicates that the stock is less volatile than the market. A positive beta indicates that the stock tends to move in the same direction as the market, while a negative beta indicates an opposite movement.

Answer: a) Beta