Recalling the meaning and calculation of beta, a security that is completely uncorrelated (ρj,m = 0) with the market portfolio would have a beta of
A)-1
B)0
C)+1
D)-100

Question

Quizplus · Accepted Answer

The formula for beta is:

Beta = Covariance (security returns, market returns) / Variance (market returns)

If the security is completely uncorrelated with the market portfolio, the covariance between its returns and the market returns would be zero. Therefore, its beta would be:

Beta = 0 / Variance (market returns) = 0

So, the correct answer is B.

Recalling the Meaning and Calculation of Beta, a Security That