If a share has a beta of 1, this means that

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BlackTom AI · Accepted Answer

Question: If a share has a beta of 1, this means that
Option presented: a. It has the same volatility as the market portfolio

To evaluate this, we need to distinguish between beta and volatility. 
- Beta measures the sensitivity of a stock’s returns to movements in the overall market. A beta of 1 indicates that the stock tends to move with the market; when the market goes up or down, the stock tends to move in the same direction and by about the same amount on average. 
- Volatility, on the other hand, refers to the total dispersion of returns, i.e., how wildly the returns vary over time, regardless of whether they move with the market or not.

Because beta isolates systematic risk (market-related movement) and ignores idiosyncratic risk (firm-specific factors), a stock can have beta = 1 but still have a different total volatility than the market. The stock could have higher or lower idiosyncratic volatility that makes its overall standard deviation different from that of the market portfolio.

Therefore, the statement that a share with beta 1 has the same volatility as the market portfolio is not necessarily true. It conflates beta (systematic risk sensitivity) with total volatility (overall risk), which are related but not identical concepts.

In general, other answer choices (if they were provided) would likely distinguish between movement with the market (beta) and total risk (volatility), reinforcing that beta = 1 implies aligned market movement, not guaranteed equal volatility.

Note: The prompt provides only a single option without other choices for comparison, so the analysis focuses on the semantics of beta versus volatility and why the given statement is an incomplete or potentially incorrect characterization.

If a share has a beta of 1, this means that

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