You observe the following information regarding Companies X and Y:- Company X has a higher expected return than Company Y.- Company X has a lower standard deviation of returns than Company Y.- Company X has a higher beta than Company Y.Given this information,which of the following statements is correct?
A)Company X has more company-specific risk than Company Y.
B)Company X has a lower coefficient of variation than Company Y.
C)Company X has less market risk than Company Y.
D)Company X's returns will be negative when Y's returns are positive.

Question

You observe the following information regarding Companies X and Y:​- Company X has a higher expected return than Company Y.- Company X has a lower standard deviation of returns than Company Y.- Company X has a higher beta than Company Y.​Given this information,which of the following statements is correct?
A)Company X has more company-specific risk than Company Y.
B)Company X has a lower coefficient of variation than Company Y.
C)Company X has less market risk than Company Y.
D)Company X's returns will be negative when Y's returns are positive.

Quizplus · Accepted Answer

Company X having a lower standard deviation of returns than Company Y, while also having a higher expected return, implies that Company X has a lower coefficient of variation (standard deviation divided by expected return), indicating a better risk-return trade-off. Beta is a measure of market risk, not company-specific risk, so a higher beta for Company X means it has more market risk, not less, making options A and C incorrect. Option D is not necessarily true as the correlation of returns is not provided.

You Observe the Following Information Regarding Companies X and Y:​-

You Observe the Following Information Regarding Companies X and Y:-