Which statement correctly describes Beta Drivers?

Beta drivers are essentially the factors that explain the sensitivity of an asset's returns to the overall market returns, which is essentially what beta represents. Beta itself is a measure of systematic risk, indicating how much an asset's price is expected to move in relation to changes in the market. Therefore, beta drivers can be described as exposures to market risk factors, which encompass a range of influences that can affect the overall market's performance.

By identifying these beta drivers, investors and portfolio managers can better understand how specific investments might respond to various market conditions. This understanding helps in constructing portfolios that are aligned with their risk-return preferences. The focus on market risk factors also distinguishes beta drivers from other types of risks, such as liquidity or non-diversifiable risks, which do not encompass the same broad market exposure.

In this context, the other options do not capture the complete essence of beta drivers as effectively. Liquidity risk is only one component of risk that may affect individual securities but does not define beta drivers. Furthermore, while non-diversifiable risk relates to systematic risk, it does not encapsulate all aspects of beta drivers, which include multiple market risk factors. Lastly, minimizing active return factors pertains to portfolio management strategies rather than the definition of beta drivers themselves.