A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

Question

Quizplus · Accepted Answer

Beta measures a stock's volatility relative to the overall market, implying its systematic risk. For an investor holding a well-diversified portfolio, beta remains relevant as it indicates the portfolio's sensitivity to market movements. However, for an investor holding only one stock, beta is less relevant since unsystematic (specific) risk, which can be diversified away, significantly impacts that stock's total risk.

A Stock's Beta Is More Relevant as a Measure of Risk