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If your company's beta is larger (smaller) than S&P 500's, then would you expect that your...

If your company's beta is larger (smaller) than S&P 500's, then would you expect that your company's S.D. also has to be larger (smaller) than S&P 500's? Why or why not?

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Answer #1

NO, beta is reflection of the volatility of the company whereas standard deviation is a reflection of the total risk associated with the movement of the company which will include both the systematic and unsystematic risk and it will also reflect the fluctuation of the stock from the historical mean.

Hence, if the beta of the company is larger or smaller than index then it will not mean that its standard deviation will also follow in the same direction because it is dependent upon that a high beta stock can have less fluctuation of Return during certain periods, whereas the low beta stocks has high fluctuations of returns during a certain period, so this given statement is not true.

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