When creating a portfolio for a risk-averse client, why would you select stocks with a beta of less than one?

When creating a portfolio for a risk-averse client, why would you select stocks with a beta of less than one?
A . So that the portfolio is easier to understand
B . So that the portfolio moves in line with the market
C . In order to produce a low-volatility portfolio
D . To produce a high-volatility portfolio

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Answer: C

Explanation:

Stocks with abeta of less than oneare less volatile than the overall market. Including such stocks in a portfolio helps reduce its overall volatility, aligning with the risk-averse nature of the client. Easier to understand (A): Simplicity is not a factor in beta selection.

Moves in line with the market (B): A beta of less than one means the portfolio moves less than the market.

High-volatility portfolio (D): This would involve stocks with a beta greater than one, contrary to the client’s risk profile.

Reference: International Certificate in Wealth & Investment Management: Beta as a measure of systematic risk and its implications for portfolio construction.

CAPM (Capital Asset Pricing Model) principles on beta and risk.