Question

How is beta affected by mergers in the airline industry. For example, is the beta of merged American Airlines/U.S. Airways higher, lower, or unchanged from their betas as stand-alone companies? Prior to their merger in December 2013, the beta of American was 1.7 and the beta of U.S. Airways was .37. Consider whether the merged company is riskier or less risky than the 2 stand-alone companies.

Answer 1

Beta is a measure of a stock's volatility in relation to the overall market. By definition, the market. Beta is used in CAPM, which describes the relationship between systematic risk and expected return for assets, particularly stocks.
Which means Beta is the risk associated with the stock and to lower this risk, it is always advisable to diversify the portfolio.
With the merger of 2 companies, the assets, liabilities employees, business idea, customers are also merged and it will surely decrease the risk for the merged company.
In this case, After merger, the merged company will surely be less riskier than 2 stand alone companies.