Explain Why International Stocks May Have High Standard Deviations but Low

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The Answer is Beta is traditionally measured relative to the S&P 500 index. As such, there may be a weaker statistical relationship between the S&P 500 and an international stock. If these two assets are mostly independent of one another, there is little chance they will have a statistically significant covariance. With a low covariance, by definition, the stock will have a low beta. This could occur even if the standard deviation of the beta is very high. This answer assumes that the market risk in domestic stocks is largely independent of the market risk in international stocks.

Explain Why International Stocks May Have High Standard Deviations but Low

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Explain Why International Stocks May Have High Standard Deviations but Low

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Correct Answer:VerifiedShow Answer

Correct Answer:
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