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Standard deviation of the regression residuals

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Consider the stocks of two companies, IBM and Amazon.

(a) If you're told that the slope of IBM's market model is 1.20 and that the slope of Amazon's market model is 1.00, which stock is likely to be more risky in a portfolio context? Explain why.

(b) If you are now also told that the standard deviation of the regression residuals for IBM stock is 10.00%, whereas it is 21.50% for Amazon stock, does that change your answer? Explain why.

Reference no: EM132534939

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