If a stock has a beta greater than 1, what does this indicate?

If a stock has a beta greater than 1, what does this indicate?

• A. Share is insensitive to market movements
• B. Share has average risk
• C. Share is sensitive to stock market changes
• D. Share has low volatility

Answer: (C)

A beta greater than 1 indicates that the stock is more volatile than the market as a whole. Specifically, it suggests that when the market goes up or down, the stock's price will tend to move in the same direction but with a greater degree of change. For example, if the market increases by 10%, a stock with a beta of 1.5 might increase by 15%. Conversely, if the market drops by 10%, the same stock may drop by 15%. This heightened sensitivity to market movements means that investors can expect greater fluctuations in the stock's returns in comparison to the market average. Thus, a beta greater than 1 is indicative of a stock that is sensitive to stock market changes, which aligns with the correct choice.

A beta greater than 1 indicates that the stock is more volatile than the market as a whole. Specifically, it suggests that when the market goes up or down, the stock's price will tend to move in the same direction but with a greater degree of change. For example, if the market increases by 10%, a stock with a beta of 1.5 might increase by 15%. Conversely, if the market drops by 10%, the same stock may drop by 15%. This heightened sensitivity to market movements means that investors can expect greater fluctuations in the stock's returns in comparison to the market average. Thus, a beta greater than 1 is indicative of a stock that is sensitive to stock market changes, which aligns with the correct choice.