Security A has an expected return of 7%, a standard deviation of returns of 35%,

Question

Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of -0.3, and a beta coefficient of -1.5. Security B has an expected return of 12%, a standard deviaiton of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of -0.3, and a beta coefficient of -1.5. Security B has an expected return of 12%, a standard deviaiton of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why

Explanation / Answer

Security A is less risky if held in a diversified portfolio because of its lower beta and negative correlation with other stocks. In a single - asset portfolio, Security A would be more risky because ? A > ? B and CV A > CV B.

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