Beta is the appropriate measure of risk for individual security if an investor holds a diversified portfolio. Standard deviation measures total risk. The unsystematic portion can be diversified away, so beta is the appropriate measure of risk.
In addition to serving as a measure of market risk, Beta tells us how a particular stock moves in relation to the rest of the stock market as a whole.
[tex]\beta_{A}=\frac{(\sigma_{A})(corr_{A,MKT})}{\sigma_{MKT}}[/tex]
where:
[tex]\beta_{A}[/tex] represents the Beta of Stock A
σ[tex]A[/tex] represents the standard deviation of stock A
[tex]corrA,MKT[/tex] represents the correlation between stock A and the overall market
σ[tex]MKT[/tex] represents the standard deviation of the overall market
By definition, [tex]\beta_{A}[/tex] = 1 because an average-risk stock is one that tends to move up and down in step with the general market.
Beta Coefficient, [tex]\beta_{A}[/tex] metric that shows the extent to which a given stock’s returns move up and down with the stock market. Beta thus measures market risk.
Learn more about Beta on:
brainly.com/question/20227632
#SPJ4
