A stock portfolio designed to mimic a market index but with fewer stocks will likely have less tracking error if it has a A) beta of 1 and a high R² B) beta of 1 and a low R² C) beta of 0 and a high R² D) beta of 0 and a low R²

Question

Quizplus · Accepted Answer

A portfolio with a beta of 1 and a high R² indicates that it closely follows the market index in terms of both volatility and correlation, resulting in less tracking error.

A Stock Portfolio Designed to Mimic a Market Index but with Fewer