Risk of a security - stand alone or as part of portfolio
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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 compares two Securities' riskiness. There are various measures of risk presented in the question - correlation, standard deviation, beta, etc. The solution identifies which measure is appropriate when we are considering risk as a standalone security and as a part of portfolio.
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Security A is less risky if held in a diversified portfolio because of its negative ...
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