CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
Compared with a peer group built from a commercial industry classification, a peer group built using statistical (correlation-based) methods on stock returns is most likely to:
A statistical approach most likely groups companies with similar return behavior regardless of their listed industry. It uses co-movement of returns, for example through clustering, rather than principal revenue source or a provider's fixed categories, so it can combine firms from different official industries.
- Agroup companies with similar return behavior regardless of listed industryCorrect
- Brely on the companies' principal source of revenue
- Cbe updated only when the provider revises its categories
Explanation
Statistical approaches such as cluster analysis group firms by how their returns co-move, so companies in different listed industries may be grouped together. Principal revenue source and provider revisions describe commercial classification systems.
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