If a company has a Beta of 1.0, what does this imply about its stock returns?

If a company has a Beta of 1.0, what does this imply about its stock returns?

• A. Stock returns are more volatile than the market average
• B. Stock returns, on average, match the returns of the broader market
• C. Stock returns are independent of the market movements
• D. Stock returns are lower than the market average

Answer: (B)

A Beta of 1.0 indicates that the stock's price movement is expected to follow the market closely. This means that if the market goes up or down, the stock will, on average, experience a proportional change in its price. Essentially, a Beta of 1.0 implies that the stock's returns are aligned with the overall market returns, reflecting an average level of risk. When the market increases by a certain percentage, the stock will typically increase by approximately the same percentage, and the same applies when the market declines. Thus, this measure signifies that the stock's volatility and returns will closely match those of the broader market, making it a good benchmark for comparison.

A Beta of 1.0 indicates that the stock's price movement is expected to follow the market closely. This means that if the market goes up or down, the stock will, on average, experience a proportional change in its price. Essentially, a Beta of 1.0 implies that the stock's returns are aligned with the overall market returns, reflecting an average level of risk. When the market increases by a certain percentage, the stock will typically increase by approximately the same percentage, and the same applies when the market declines. Thus, this measure signifies that the stock's volatility and returns will closely match those of the broader market, making it a good benchmark for comparison.