Which of the following statements is correct?
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GGG Inc. is in the business of selling gold. GGG’s revenues, profits, and stock price tend to rise during recessions. This suggests that GGG Inc.’s beta should be quite high, say 3.0, because it does so much better than most other companies when the economy is weak.
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You think that investor sentiment is about to change, and investors are about to become more risk seeking. This suggests that you should rebalance your portfolio to include more low-beta stocks.
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Suppose you are managing a stock portfolio, and you have information that leads you to believe the stock market is likely to be very weak in the immediate future. That is, you are convinced that the market is about tofallsharply. You shouldbuyhigh-beta stocks and sell your low-beta stocks in order to take advantage of the expected market move.
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Suppose the returns on two stocks are negatively correlated. One has a beta of 1.5 as determined in a regression analysis using data for the past 10 years, while the other has a beta of –0.7. The returns on the stock with the negative beta will be negatively correlated with returns on most other stocks in the market during that 10-year period.
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