The correct answer is A. high beta and standard deviation.
Beta is a measure of a stock’s volatility relative to the market. A stock with a beta of 1 has the same volatility as the market, while a stock with a beta of 2 is twice as volatile as the market. Standard deviation is a measure of a stock’s volatility over time. A stock with a high standard deviation is more volatile than a stock with a low standard deviation.
A stock with a high beta and standard deviation will contribute more risk to a diversified portfolio than a stock with a low beta and standard deviation. This is because a stock with a high beta is more likely to move in the same direction as the market, and a stock with a high standard deviation is more likely to experience large price swings.
Here is a brief explanation of each option:
- Option A: high beta and standard deviation. A stock with a high beta is more likely to move in the same direction as the market, and a stock with a high standard deviation is more likely to experience large price swings. Therefore, a stock with a high beta and standard deviation will contribute more risk to a diversified portfolio than a stock with a low beta and standard deviation.
- Option B: high beta, low standard deviation. A stock with a high beta is more likely to move in the same direction as the market, but a stock with a low standard deviation is less likely to experience large price swings. Therefore, a stock with a high beta and low standard deviation may not contribute as much risk to a diversified portfolio as a stock with a high beta and high standard deviation.
- Option C: low beta, low standard deviation. A stock with a low beta is less likely to move in the same direction as the market, and a stock with a low standard deviation is less likely to experience large price swings. Therefore, a stock with a low beta and low standard deviation will contribute the least amount of risk to a diversified portfolio.
- Option D: low beta, low variance. Variance is a measure of a stock’s volatility, but it is not as commonly used as standard deviation. Therefore, option D is not the best answer.