Question

Companies that have highly cyclical sales will have a:

high beta if sales are independent of the market cycle.

All of these.

low beta if sales are highly dependent on the market cycle.

None of these.

high beta if sales are highly dependent on the market cycle.

Answer 1

Companies with cyclical sales which are correlated with the market will definitely have a 'Higher' Beta as there would be larger correlation of its returns with the market. Therefore the option 5 is correct

You can take this as thumbrule as well. Higher dependence on market cycle will make the stock move with the market but with larger amplitude. The stock which grow with the economic activity like a banking stock will do better than the market if economy is good and worse than the market if economy is bad