Business, 07.01.2021 17:20 winnie45

Standard Deviation (%) R 2 Beta Standard Error of Beta TDM 13 0.49 0.83 0.11 LLW 21 0.01 0.21 0.25 What proportion of each stock's risk was market risk, and what proportion was specific risk

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Note: These values are not from this question, as this question is incomplete and lacks necessary data. So, in order to solve this question and deliver you the main concept. I have chosen some random values.

Answer is explained in the explanation section.

Explanation:

Solution:

Data Given:

This question is about the two well known Canadian Stocks namely:

1. Toronto Dominion Bank

2. Research in Motion.

Data For Toronto Dominion Bank:

For answering about the proportion of risk involved in each of stocks, we just need the value of $R^{2}$ .

$R^{2}$ value for TDB = 0.77

$R^{2}$ value of 0.77 means, 77% of the risk is derived from the market movements. So we can say it as this 0.77 or 77% of proportion for Toronto Dominion Bank is of market risk.

Generally speaking, in market risk there is the probability that people will lose their investments due to the factors that create negative impacts on the market.

Whereas, specific risk is totally opposite to market risk and people specific to any company or group may experience losses but not the whole market, which is the case in market risk.

Where as, remaining 0.23 or 23% of the risk is unique risk or specific risk.

Similarly for the other stock:

$R^{2}$ value for Research in Motion = 0.44

$R^{2}$ value of 0.44 means 44% of the risk is derived from the movements of the market or it is market risk. On the other hand, remaining 0.66 or 66% of the risk is specific risk or unique risk.

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Standard Deviation (%) R 2 Beta Standard Error of Beta TDM 13 0.49 0.83 0.11 LLW 21 0.01 0.21 0.25 W...