Corporate Finance Practice Test

An investor might consider an asset with a negative beta primarily because it serves as a diversification instrument. Beta measures the tendency of an asset's returns to move in relation to the overall market returns. A negative beta indicates that the asset tends to move in the opposite direction of the market.

When the market is doing poorly, an asset with a negative beta may perform well, providing a hedge against market downturns. This characteristic makes such assets valuable in a portfolio, as they can reduce overall portfolio risk and volatility when combined with other assets that have positive correlations with the market. In essence, including negative beta assets in a portfolio can enhance risk-adjusted returns, particularly during market turbulence, which is why an investor might seek them out for diversification purposes.

The other options suggest characteristics that are not inherent to negative beta assets. For instance, a negative beta does not guarantee positive returns, nor does it imply high volatility or a strong positive correlation with the market, as those traits would likely indicate a positive beta instead.