Beta is known as a measure of what?

Beta is known as a measure of what?

• A. Portfolio's growth potential
• B. Inflation risk
• C. Volatility of the entire market
• D. Company-specific risk

Answer: (C)

Beta is a measure that indicates the sensitivity of an asset's returns relative to the overall market returns. More specifically, it quantifies how much an asset, such as a stock, is expected to move in relation to market movements. When beta is greater than 1, the asset is predicted to be more volatile than the market, while a beta less than 1 suggests that the asset is less volatile. Thus, recognizing that beta specifically relates to the volatility associated with the entire market helps investors and portfolio managers understand the potential risk and return dynamics of an asset in comparison to broader market movements. It's instrumental in portfolio management when making decisions regarding asset allocation and risk assessment, particularly in relation to market risk. In contrast, the other options refer to different concepts: growth potential is related to revenue increases over time, inflation risk pertains to the purchasing power impact of inflation, and company-specific risk focuses on factors that affect a particular company, rather than market-wide fluctuations.

Beta is a measure that indicates the sensitivity of an asset's returns relative to the overall market returns. More specifically, it quantifies how much an asset, such as a stock, is expected to move in relation to market movements. When beta is greater than 1, the asset is predicted to be more volatile than the market, while a beta less than 1 suggests that the asset is less volatile.

Thus, recognizing that beta specifically relates to the volatility associated with the entire market helps investors and portfolio managers understand the potential risk and return dynamics of an asset in comparison to broader market movements. It's instrumental in portfolio management when making decisions regarding asset allocation and risk assessment, particularly in relation to market risk.

In contrast, the other options refer to different concepts: growth potential is related to revenue increases over time, inflation risk pertains to the purchasing power impact of inflation, and company-specific risk focuses on factors that affect a particular company, rather than market-wide fluctuations.