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Stock X has an expected return of 7 percent, a standard deviation of returns of 28...

Stock X has an expected return of 7 percent, a standard deviation of returns of 28 percent, a correlation coefficient with the market of –0.5, and a beta coefficient of –0.6. Stock Y has an expected return of 14 percent, a standard deviation of 15 percent, a 0.7 correlation with the market, and a beta of 0.9. Which security would be riskier if it were held by itself as a single investment?

a.

Stock Y
b.

Both would be equally risky.
c.

Stock X
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Answer #1

If only one security is held as an investment, then the risk it would be having would be the total risk denoted by standard deviation of the security.

So, higher the standard deviation, higher would be the risk. Hence in this case, riskier investment is Stock X if held by itself.

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