In the context of investments, which factor is often used to judge if a stock's performance is good relative to the market?

• A. Payout ratio alone
• B. Beta and market performance
• C. Dividend yield alone
• D. Revenue growth alone

Answer: (B)

The key idea is evaluating return relative to the market after accounting for risk. Beta measures how a stock tends to move with the overall market, i.e., its sensitivity to market swings. By comparing the stock’s actual performance to the market’s performance, while considering this beta, you can see whether the stock earned more than what its risk would predict. If it outperforms the market given its beta, that indicates good relative performance (positive risk-adjusted return, or alpha). The other factors—payout ratio, dividend yield, or revenue growth—tell you about income or business growth, not how the stock performs relative to market moves after accounting for risk, so they don’t provide as complete a assessment of relative performance.