CFA Practice Question

There are 191 practice questions for this study session.

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!
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