- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 40. Introduction to Industry and Company Analysis
- Subject 2. Approaches to Identifying Similar Companies
CFA Practice Question
If an industry experiences patterns that do not correlate well with the general economy but trend against other economic variables, such as stock prices, it is categorized as ______.
A. growth
B. defensive
C. cyclical
User Contributed Comments 10
| User | Comment |
|---|---|
| sbrewer | Cyclical means that it moves with the general economy (amplified). Defensive are those stocks who aren't correlated. |
| jjowen | Cyclical does not mean an industry has to be cyclical with the general economy. It can be cyclical with the weather, stock prices, and other variables. |
| sireklove | Well, that is true that cyclical doesn't mean it has to correlate with the economy (I don't have my book on my at the moment to double check) but I was looking for "countercyclical' for my answer and chose D. It seems that most commonly "cyclical" is used to refer to industries that do correlate with the general economy not just that experience patterns of performance. |
| ahug | The reading specifically states that cyclical industries do not necessarily correlate to the performance of the economy. They can correlate to a number of different factors. |
| volkovv | Straight from the book "Certain cyclical firms experience earnings patterns that do not correlate well against the general economy, but trend against the other economic variables. Brokerage firms, for example, show cyclicality based on stock prices." This is where the author took this question from... |
| fedor5 | good question |
| levonb | and what do stock prices correlate to?... |
| Dinosaur | they correlate very well to stock prices :) |
| endurance | Cyclical industries like basic ressources typically trends against the market during periods of recessions and low growth, WHEN market expectations to better economic growth environment emerges. The opposite holds true as well |
| MTHuffness | I know for a fact defensive stocks do not correlate well against the general economy, but trend well against other economic variables... i.e. the REIT values vs interest rates... tricky stuff! |