Which security is more risky
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Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of -0.25, and a beta coefficient of -0.5.
Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5.
Which security is more risky? Why?
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Solution Summary
The solution explains how to determine which security is more risky.
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We can look at the riskiness on a standalone basis and in terms of a portfolio. Standalone risk is measured through coefficient of variation (CV) = Standard Deviation/Expected return
For Security A, CV = 30%/6% = 5
For Security B, CV = 10%/11% = ...
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