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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index

Which statement about beta of a stock relative to an index is correct?

A beta of 0.8 means the stock is expected to move about 0.8% in the same direction for every 1% move in the index, so it is less volatile than the index. Beta measures systematic risk, not unsystematic risk.

  1. AA beta of 0.8 means the stock is expected to move 0.8% for a 1% index move, i.e., it is less volatile than the indexCorrect
  2. BA beta of 0.8 means the stock will fall 0.8% when the index rises 1%
  3. CA beta above 1 means the stock has lower systematic risk than the index
  4. DBeta measures the stock's unsystematic risk

Explanation

Beta measures sensitivity to market movements, which is systematic risk. A beta of 0.8 means a 1% index move is associated with roughly 0.8% move in the stock in the same direction. Beta above 1 means higher systematic risk than the index.

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