Question: Consider two stocks, 1 and 2. Separately for each stock, you plot the stocks return (y-axis) against the markets return (x-axis), i.e. the Security Characteristic

Consider two stocks, 1 and 2. Separately for each stock, you plot the stocks return (y-axis) against the markets return (x-axis), i.e. the Security Characteristic Line (SCL). The slope is positive for both stocks, and is steeper for Stock 1 than for stock 2. This implies that systematic risk is greater for _________, and firm-specific risk is greater for ___________.

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