Question

Look up the beta coefficients for two companies you are interested in and report them. According...

Look up the beta coefficients for two companies you are interested in and report them. According to the beta coefficients, which company is considered to have less market risk?

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Answer #1

Companies whose Beta is Equal to 1 has same market risk as that of market portfolio. Market portfolio is a portfolio that is thought to reflect the sentiment of the market. Beta reflects the systematic risk. If a stock beta is equal to 1, then it means that it will move exactly like market, if the market portfolio gives 5% return then the stock will also give 5% return as its market risk is same as the market risk of market portfolio. This is systematic risk and investors are paid for systematic risk. Unsystematic risk can be controlled by proper diversification of portfolio.

When Beta of a company's stock is less than 1, then that company is considered to have less market risk. It means the company is less risky than market portfolio, so will generate less return.

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