A portfolio with a beta of minus 2 has the same degree of risk to its holder, relative to the market, as a portfolio with a beta of plus 2. However, the holder of either portfolio could lower his or her risk exposure by buying some "normal" stocks.

Question

Quizplus · Accepted Answer

A portfolio with a beta of minus 2 has double the opposite correlation with the market as a portfolio with a beta of plus 2. However, both portfolios are considered to have the same degree of risk to their holder, relative to the market. By adding some "normal" stocks with a beta of 1 to the portfolio, the holder could lower their overall risk exposure.

A Portfolio with a Beta of Minus 2 Has the Same