Consider the following two security characteristic lines (SCL) for stock A and Stock B with R_A, R_B, and R_M representing the excess returns of stock A, stock B, and the market index M, respectively:

1. Which stock has a higher firm-specific variance?

2. Which stock has a higher systematic variance?

3. Which stock has a higher R-squared in the regression?

4. Which stock has a higher alpha?

5. Which stock has a higher correlation with the market index?

Transcribed Image Text:

RA RM RB RM RA RM RB RM