Question

You have the following data on three stocks:

Stock	Standard Deviation	Beta
A	20%	0.59
B	14%	0.64
C	10%	1.29

You are a very conservative investor and wish to minimize risk in your investments. If you were to hold only one (1) stock in your investment account you would choose Stock ____. If, however, you were adding to an already well-diversified portfolio you would choose Stock ____ .

Answer 1

If you were to hold only one (1) stock in your investment account you would choose Stock A.

If, however, you were adding to an already well-diversified portfolio you would choose Stock C.

As a conservative investor i would choose stock A if i had to hold only 1 stock in my investment account as the beta for stock A is the least which implies that the stock's volatility with respect to the market is is lowest amongst the three that is it is quite stable compared to overall market fluctuations and hence the risk would be minimized to a great extent.

However if i had to add a stock to a diversified portfolio i would choose stock C as the standard deviation of the stock is the least that is it varies in a certain range and hence the overall portfolio would be balanced.

Do comment if you have any doubt.

Thank you !!