Characteristic line is used to estimate the market risk with the best fit for a scatter diagram showing the rates of return of an individual risky asset and the market portfolio of risky assets over time.

Question

Quizplus · Accepted Answer

This is correct. The characteristic line is a regression line that represents the linear relationship between an individual stock's returns and the returns of the market as a whole. By estimating the slope and intercept of this line, analysts can determine the stock's beta coefficient, which is a measure of its systematic risk (i.e., the risk associated with changes in the overall market).

Characteristic Line Is Used to Estimate the Market Risk with the Best