Question

1. Stock A has an expected return of 7%, a standard deviation of expected returns of 35%, a correlation coefficient with the market of -0.3, and a beta coefficient of -0.5. Stock B has an expected return of 12% a standard deviation of returns of 10%, a 0.7 correlation with the market, and a beta coefficient of 1.0. Which security is riskier

Answer 1

Answer:

Option A is riskier

Explanation:

In this question, we want to know which of the two stocks is riskier.

To answer this, we can use the standard deviation of returns as a risk measure.

For a security with a big value for standard deviation of returns, its per period returns are wider making its range per day large.

Hence, what this means is that out of the two stocks, the one with a larger value of standard deviation of returns will guarantee more risk as it is expected to give a better ranges of price

Now back to the values in the question, we can see that the standard deviation of returns of stock A is greater than that of stock B which this makes it a more risky option