What is the stock's beta?

Standard Deviation of 2 Stocks (given: E(r), Beta, Firm-Specific Std Dev.)?

• Stock A: E(r): 10% Beta: 0.80 Firm-Specific Std. Dev.: 29% Stock B: E(r): 17% Beta: 1.30 Firm Specific Std. Dev.: 40% Mkt. Std Dev: 19% R(rf): 6% What are the standard deviations of the two stocks?

• Answer:

  So PrivateBanker thinks that if you take the square root of the Variance you get the standard deviation so if you take the square root of the covariance of A to M you get the "standard deviation of A to M"? WTF is that? That's just silly and there is no time in statistics that you take the square root of the covariance. I also don't know what is meant by Firm-specific standard deviation, but I'll go with "Firm-specific Std. Dev" is the standard deviation of the residuals after the model fit to the ssingle-index model. Then Var(A) = BetaA^2*Var(M) + Firm-Specific Variance =0.8^2*19%^2 + 29%^2 Std. Dev(A) = Sqrt(0.8^2*19%^2 + 29%^2) and B is similar.