Stocks with a beta of less than one are less volatile than the overall market. Including such stocks in a portfolio helps reduce its overall volatility, aligning with the risk-averse nature of the client.
Easier to understand (A): Simplicity is not a factor in beta selection.
Moves in line with the market (B): A beta of less than one means the portfolio moves less than the market.
High-volatility portfolio (D): This would involve stocks with a beta greater than one, contrary to the client’s risk profile.
References:
International Certificate in Wealth & Investment Management: Beta as a measure of systematic risk and its implications for portfolio construction.
CAPM (Capital Asset Pricing Model) principles on beta and risk.
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