Suppose the total volatility of returns on a stock is 25%. A linear model with two risk

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Suppose the total volatility of returns on a stock is 25%. A linear model with two risk factors indicates that the stock has betas of 0.8 and 1.2 on the two risk factors. The factors have volatility 15 and 20%, respectively, with correlation of 0.5. How much of the stocks volatility can be attributed to the risk factors and how large is the stocks specific risk?

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Quantitative Finance

ISBN: 9781118629956

1st Edition

Authors: Maria Cristina Mariani, Ionut Florescu

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