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Yes, two securities with the same stand-alone risk can have different betas because beta measures the systematic risk of a security in relation to the market. Even if two securities have the same stand-alone risk, their sensitivities to market movement can be different, leading to different betas. Factors such as business model, industry dynamics, and financial leverage can contribute to the discrepancy in betas.
What else can I help you with?
How do historical betas adjusted historical betas and fundamental betas differ?
In the investment world, betas refer to the standard deviation between the stock and the market index average. Historical is based on past performance. Adjusted takes into account factors for a clearer interpretation. Fundamental betas often used for predictions assume that the stock is approaching the index current average.
Can Systematic risk can be eliminated by diversification?
No, systematic risk cannot be eliminated by diversification. Systematic risk, also known as market risk, affects all securities and is tied to factors like economic changes, interest rates, and geopolitical events. While diversification can reduce unsystematic risk (specific to individual assets), it cannot mitigate the inherent risks that impact the entire market. Investors can, however, manage systematic risk through strategies like asset allocation and hedging.
An increase in the riskiness of a particular security would NOT affect?
An increase in the riskiness of a particular security would not affect the market risk premium, as it is determined by overall market conditions and not specific to individual securities.
Which of the following best explains why different people have different levels of risk aversionWhich of the following best explains why different people have different levels of risk aversion?
Different people have varying levels of risk aversion due to differences in personal experiences, financial situations, and psychological factors. Some individuals may have a higher tolerance for risk if they have a stable financial situation or a history of successful investments, while others may be more risk-averse due to fear of losses or uncertainty. Psychological traits such as personality, confidence, and cognitive biases also play a role in shaping individuals' risk preferences.
What are the two key ideas of modern portfolio theory?
The two key ideas of modern portfolio theory are diversification and the trade-off between risk and return. Diversification involves spreading investments across different assets to reduce risk, while the risk-return trade-off suggests that investors should seek an optimal balance between risk and potential return based on their risk tolerance.
What is the invest the pooled contributions from many investors in different types of securities to decrease risk?
Mutual funds
Where do betas originate from?
Betas are a term used in finance to measure the volatility or risk of a specific stock or portfolio in relation to the overall market. They originate from the Capital Asset Pricing Model (CAPM), which is a widely used theory in finance that helps to determine the expected return on an investment based on its risk.
Can a tadpole live with a bata?
I wouldn't risk it. betas live alone, and most betas will kill company. buy a separate fish bowl, appropriate for the tadpole when it is older, and larger. :)
What is Structured credit products?
bundles of debts sliced into securities, in order to offer different levels of risk and exposure to losses.
Spreading out the risk is called?
In business it means having many investments among many different securities or sectors to reduce the risk of owning any single investment
When combining two securities into a portfolio risk reduction will be greatest when the two securities are?
When combining two securities into a portfolio, risk reduction will be greatest when the two securities are negatively correlated. This means that when one security's price decreases, the other security's price tends to increase, providing a natural hedge against market fluctuations. Additionally, having low correlation between the securities can also help in reducing overall portfolio risk by diversifying the sources of returns.
How do historical betas adjusted historical betas and fundamental betas differ?
In the investment world, betas refer to the standard deviation between the stock and the market index average. Historical is based on past performance. Adjusted takes into account factors for a clearer interpretation. Fundamental betas often used for predictions assume that the stock is approaching the index current average.
What is the haircut number system and how does it determine the risk associated with different types of securities?
The haircut number system is a method used in finance to assess the risk of different types of securities. It assigns a percentage value to each security based on its perceived risk level. The higher the percentage, the riskier the security is considered to be. This system helps investors and financial institutions make informed decisions about their investments by taking into account the potential risks involved.
What has the author Carl Robert Schwinn written?
Carl Robert Schwinn has written: 'Competition, risk, and the valuation of securities' -- subject(s): Securities, Investments
How do you calculate risk - free return?
Risk free rate of return or risk free return is calculated as the return on government securities of the same maturity.
What has the author Guy P Wyser-Pratte written?
Guy P. Wyser-Pratte has written: 'Risk arbitrage II' -- subject(s): Arbitrage, Securities, Consolidation and merger of corporations, Tender offers (Securities), Risk
Where would underpriced and overpriced securities plot on the SML?
Underpriced securities plot above the Security Market Line (SML), indicating a higher expected return for their level of risk, suggesting they are attractive investments. Conversely, overpriced securities plot below the SML, reflecting a lower expected return for their level of risk, making them less desirable investments. The SML represents the relationship between risk (beta) and expected return, serving as a benchmark for evaluating securities.
