An analyst finds a stock that has had a low beta given its historical return, but its total risk has been commensurate with its return. When writing a research report about the stock for clients with well-diversified portfolios, according to Standard V(B), Communication with Clients and Prospective Clients, the analyst needs to mention: A) the relationship of the historical total risk to return only. B) both the historical beta and total risk and return. C) the relationship of the historical beta and return only. D) how the beta compares to total risk.
Hmm…clients have well-diversified portfolios, so beta is not an important consideration? So maybe A? tough one
C. Since they are well diversified, total risk (st. dev) is NOT important, only systematic risk is (Beta). Total Returns should be minimally affected, only focus on the individual selection!
yeah C is correct answer …i got this wrong on Q-Bank
Northeastern Student Wrote: ------------------------------------------------------- > C. Since they are well diversified, total risk > (st. dev) is NOT important, only systematic risk > is (Beta). Total Returns should be minimally > affected, only focus on the individual selection! why is well diversified portfolio not required to know about total risk (Std. dev)?? wouldn’t adding a new stock with high risk have an effect even on well diversified portfolio? or is it because of the attributes of this particular stock (with low beta and commensurate returns) that this is not required to know?