The? first, shown in Panel? A, is Cyclical Industries Incorporated. Cyclical Industries makes machine tools and other heavy? equipment, the demand for which rises and falls closely with the overall state of the economy. The second? stock, shown in Panel? B, is Biotech Cures Corporation. Biotech Cures uses biotechnology to develop new pharmaceutical compounds to treat incurable diseases. ? Biotech's fortunes are driven largely by the success or failure of its scientists to discover new and effective drugs. Each data point on the graph shows the monthly return on the stock of interest and the monthly return on the overall stock market. The lines drawn through the data points represent the characteristic lines for each security.
a. Which stock do you think has a higher standard? deviation? ?Why?
b. Which stock do you think has a higher? beta? ?Why?
c. If an investor was seeking to diversify the risk of their current? portfolio, which stock would be? preferred?