portela.alan
Dec 15, 2011, 09:19 AM
Hi. I'm looking for an answer for the following question. I'm going to copy it and then tell ou about what I was thinking for the answer.
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 deviation of returns of 10% , a correlaion with the market of 0.7, and a beta coefficeint of 1.0.Which security is riskier and Why?
It seems to be a very simple question actually. What I came up with is that it depends in what terms we are evaluating risk, if in an stand-alone basis or in a portfolio basis. Despite having a bigger coefficient of variation, the security A has less relevant risk when measured by its beta. Is that right or is there an absolut answer?
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 deviation of returns of 10% , a correlaion with the market of 0.7, and a beta coefficeint of 1.0.Which security is riskier and Why?
It seems to be a very simple question actually. What I came up with is that it depends in what terms we are evaluating risk, if in an stand-alone basis or in a portfolio basis. Despite having a bigger coefficient of variation, the security A has less relevant risk when measured by its beta. Is that right or is there an absolut answer?