Chartered Market Technician (CMT) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

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What does a high beta value imply about a stock?

It is less volatile than the market

It has a higher risk relative to the market

A high beta value indicates that a stock is more volatile than the market, which implies it has a higher risk relative to the overall market performance. Beta is a measure of a stock's sensitivity to market movements. A beta greater than 1 signals that the stock tends to move more than the market in either direction; thus, during market upswings, a high beta stock may rise more significantly than the market, and in downturns, it may fall more sharply.

In essence, investors tend to see high beta stocks as riskier investments because their price fluctuations can be larger than those of the market. This greater volatility can lead to higher potential returns, but it also exposes investors to a greater chance of loss, making it crucial for those managing their portfolios to consider their risk tolerance when investing in such stocks.

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It moves in the opposite direction of the market

It is stable

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