If a stock's returns are volatile, then the stock:
A) cannot be considered a negative risk asset.
B) can still be considered a negative risk asset.
C) has macro risk, but no unique risk.
D)does not offer diversification potential.

Question

Quizplus · Accepted Answer

A stock can still be considered a negative risk asset even if its returns are volatile. The term "negative risk" refers to the risk that the stock's returns will be lower than expected or will result in a loss. While high volatility may increase the risk of the stock's returns being lower than expected, it does not necessarily mean that the expected return is negative. Additionally, a high-risk asset can still have diversification potential if it does not move in tandem with other assets in a portfolio. Therefore, choice B is the best answer as it acknowledges that high volatility does not necessarily disqualify a stock from being a negative risk asset.

If a Stock's Returns Are Volatile, Then the Stock