A stock that has a high covariance with market conditions is considered risky because:
when the market is declining, that stock will decline too.
the stock does not fluctuate in value.
the stock belongs to a small company.
the stock moves against the market.
A stock that has a high covariance with market conditions is considered risky because:
when the market is declining, that stock will decline too.
High covariance indicates that the stock's returns move in the same direction as the market's returns. Therefore, if the market is experiencing a downturn, a stock with high covariance is likely to decline as well, which contributes to its riskiness.