A considerable scattering in the plot of points representing the historic returns of a stock versus the returns on the market indicates the:
A) high beta of the stock.
B) unique risk of the stock.
C) changes in market risk premium over time.
D) current underpricing of the stock.

Question

Quizplus · Accepted Answer

A considerable scattering in the plot of points, also referred to as a high degree of dispersion, represents the unique risk of the stock. Unique risk is the risk that is specific to a particular company or industry and cannot be diversified away through portfolio diversification. The higher the dispersion, the higher the unique risk of the stock. The other options (A, C, and D) are not directly related to the dispersion in the plot of points.

A Considerable Scattering in the Plot of Points Representing the Historic