If an investor does not diversify their portfolio and instead puts all of their money in one stock,the appropriate measure of security risk for that investor is the ________.
A) stock's standard deviation
B) variance of the market
C) stock's beta
D) covariance with the market index

Question

Quizplus · Accepted Answer

The appropriate measure of security risk for an investor who does not diversify their portfolio and instead puts all of their money in one stock is the stock's standard deviation. Standard deviation measures the amount of variation or dispersion of a set of values from the average. In this case, the stock's standard deviation will indicate the level of risk associated with investing solely in that stock. The other options are not applicable in this scenario: variance of the market measures the average squared deviations of the market returns from their average (not specific to the chosen stock), stock beta measures the stock's systematic risk compared to the overall market, and covariance with the market index measures how the returns of the stock move in tandem with those of the market index (again, not specific to the chosen stock).

If an Investor Does Not Diversify Their Portfolio and Instead