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Investors often seek stocks that diversify their risk into uncorrelated investments. Should such investors seek stocks...

Investors often seek stocks that diversify their risk into uncorrelated investments. Should such investors seek stocks with large β or β close to 0?

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Answer #1

The Correct answer is Beta close to 0

The Beta is a measure of risk which shows how the stock will show the movement in the security in comparison to the market. The Beta of More than 1 shows that the stock will show greater movement than the market and vice-versa.

The Beta of 0 shows that the stock will mot show any movement in the price in comparison to the market, so in case to diversify the risk the investor should beta which is close to zero rather than higher beta stock.

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