Which of the following statements is CORRECT?
A) "Characteristic line" is another name for the Security Market Line.
B) The characteristic line is the regression line that results from plotting the returns on a particular stock versus the returns on a stock from a different industry.
C) The slope of the characteristic line is the stock's standard deviation.
D) The distance of the plot points from the characteristic line is a measure of the stock's market risk.
E) The distance of the plot points from the characteristic line is a measure of the stock's diversifiable risk.

Question

Quizplus · Accepted Answer

The distance of the plot points from the characteristic line represents the stock's diversifiable risk, which is the risk that can be eliminated through diversification.

Which of the Following Statements Is CORRECT