I am posting the question and my initial stab at the answer to see if I am on the right track as well as get insight on the second half of the question.

Question: Explain why the beta of the S&P 500 Index is 1.0.

Hint: Look at the characteristic line diagram on the top chart in the attachment and imagine that the same S&P 500 Index data was on both the x-axis and y-axis. Where would the characteristic line fall in that case?

My answer: The S&P 500 is the whole of a designated group of securities. The volatility of these securities are determined by their beta value compared to a baseline meaurement. The S&P beta of 1.0 acts as that baseline measurement.

Please correct as needed and help with second half of question.

Thanks.