Discuss CSI CSC2 Exam Topic 6 Question 12

What industry stocks tend to have lower betas than the market?

ATransportation

BCapital goods

CUtilities

DAutomobiles and components

Suggested Answer: C

Beta is a measure of a stock's volatility compared to the overall market. Stocks with lower betas tend to experience smaller price fluctuations relative to the market.

Utilities: Utility companies generally have stable and predictable revenue streams because they provide essential services like electricity, water, and gas, which are always in demand regardless of economic cycles. As a result, utility stocks have lower betas, reflecting their lower sensitivity to market movements.

Why Other Options Are Incorrect:

A . Transportation: Stocks in this sector are more sensitive to economic changes and fuel prices, leading to higher betas.

B . Capital Goods: This sector involves investments in industrial equipment and machinery, which fluctuate with economic cycles and have higher betas.

D . Automobiles and Components: This industry is cyclical and highly dependent on economic trends, leading to higher betas.

CSC Volume 2, Chapter 13: Risk and return in specific industries.

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12 comments · newest first

Celestina 3 months ago

I’m leaning towards B) Capital goods. They can be steady too.

Anglea 3 months ago

Agreed! Utilities are less volatile.

Tarra 3 months ago

I think C) Utilities. They’re usually stable.

Malcom 3 months ago

Surprised to see utilities mentioned, really?

Launa 3 months ago

Capital goods can be volatile, not sure about that one.

Tijuana 4 months ago

I thought transportation stocks were lower too?

Art 5 months ago

Totally agree, utilities are pretty stable!

Annette 5 months ago

Utilities usually have lower betas.

Jacklyn 6 months ago

I think I saw a practice question about this, and utilities were definitely mentioned as having lower betas.

Mable 6 months ago

I feel like transportation stocks might have higher betas due to economic cycles, but utilities seem like a safer bet.

Artie 6 months ago

I remember studying that capital goods can be more volatile, so maybe they don't fit this question.

Adrianna 6 months ago

I think utilities usually have lower betas because they provide essential services, but I'm not entirely sure.

CSI CSC2 Exam - Topic 6 Question 12 Discussion