Key Takeaways
- Beta indicates how volatile a stock's price is in comparison to the overall stock market.
- A beta greater than 1 indicates a stock's price swings more wildly (i.e., more volatile) than the overall market.
- A beta of less than 1 indicates that a stock's price is less volatile than the overall market.
What does beta mean in the stock market?
Nov 20, 2003 · Key Takeaways Beta, primarily used in the capital asset pricing model (CAPM), is a measure of the volatility–or systematic risk–of a... Beta data about an individual stock can only provide an investor with an approximation of how much risk the stock will... For beta to be meaningful, the stock ...
What does beta mean for a stock?
Mar 03, 2022 · In equity, a stock’s beta compares how much the stock’s price moves with the general market. A stock whose beta exceeds 1, the overall market is more volatile than one whose beta exceeds 0. The beta (Beta-O) of an asset for example is one. A 30% rise in volatility is possible because the stock market has risen 70%.
What is a good beta for stock?
Oct 06, 2021 · Beta is a statistical measure of a stock’s volatility that may in turn be used to determine how volatile a stock is in comparison to the rest of the market. In other words, the stock’s beta value suggests the extent of its volatility and measures the responsiveness of a stock’s price to changes in the market.
What do stocks have a high beta?
What is a good beta for a stock?
A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility.
What does a stock beta of 0.5 mean?
For example, a beta of 0.5 implies that a stock's movements will theoretically be about 50% of the index's movements. A stock with a beta of more than one is more volatile than the overall index. For example, a beta of 2.0 implies that the stock will move twice as much as the market.May 19, 2016
Is a beta of 1 GOOD?
A beta of 1 indicates that the security's price tends to move with the market. A beta greater than 1 indicates that the security's price tends to be more volatile than the market. A beta of less than 1 means it tends to be less volatile than the market.
What does a stock beta of 1.2 mean?
A beta that is greater than 1.0 indicates that the security's price is theoretically more volatile than the market. For example, if a stock's beta is 1.2, it is assumed to be 20% more volatile than the market.
What's a good PE ratio?
A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The average P/E for the S&P 500 has historically ranged from 13 to 15. For example, a company with a current P/E of 25, above the S&P average, trades at 25 times earnings.
What does a beta of 10 mean in stocks?
That is, a 10% up or down move in the stock market index should theoretically result in a 10% up or down move in the stock. A beta of 2.0 implies the stock will tend to move twice as much as the market. That is, if the market moves up 10%, the stock should move up 20%.Oct 29, 2021
What does a beta of 0.6 mean?
Teva Pharmaceutical Industry's 2.49 beta, for example, indicates that the stock is expected to be more than twice as volatile than the market, while Intel's beta of 0.6 means the stock will typically move at a rate that's only about half that the broader market (data from Yahoo Finance, June 13, 2019).Mar 12, 2021
What is the lowest beta stock?
Low Beta Dividend Stocks with High YieldsPhillips 66 Partners LP (NYSE:PSXP) Dividend Yield as of January 26: 8.18% ... Lumen Technologies, Inc. (NYSE:LUMN) ... Broadmark Realty Capital Inc. (NYSE:BRMK) ... DallasNews Corporation (NASDAQ:DALN) Dividend Yield as of January 26: 9.24% ... Chimera Investment Corporation (NYSE:CIM)Feb 7, 2022
What stocks have a negative beta?
Negative Beta StocksCompanyCurrent PriceVolumeMSGM Motorsport Games$1.00 -4.8%139,400APRN Blue Apron$3.65 -4.7%804,800NUZE NuZee$1.87 -1.1%17,800VLON Vallon Pharmaceuticals$2.27 +100.9%172.66 million44 more rows
Which is more riskier beta or 1.2 Why?
A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market" (2015).
What does a beta of 0 mean?
A beta value of 0 means the stock's performance is uncorrelated with the market. You may also see beta values below 0, indicated with a negative sign. This means that the stock has a tendency to move in the opposite direction from the market as a whole.Mar 13, 2019
What does a positive beta mean?
A positive beta value indicates that stocks generally move in the same direction with that of the market and the vice versa.
What is beta in stocks?
Beta is a measure of the volatility — or systematic risk — of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks). CAPM is widely used as a method for pricing risky securities ...
Why do investors use beta?
Ultimately, an investor is using beta to try to gauge how much risk a stock is adding to a portfolio. While a stock that deviates very little from the market doesn’t add a lot of risk to a portfolio, it also doesn’t increase the potential for greater returns.
How does beta work?
How Beta Works. A beta coefficient can measure the volatility of an individual stock compared to the systematic risk of the entire market. In statistical terms, beta represents the slope of the line through a regression of data points.
Why is beta important?
Beta is useful in determining a security's short-term risk, and for analyzing volatility to arrive at equity costs when using the CAPM. However, since beta is calculated using historical data points, it becomes less meaningful for investors looking to predict a stock's future movements.
What is beta in capital asset pricing?
Beta, primarily used in the capital asset pricing model (CAPM), is a measure of the volatility–or systematic risk–of a security or portfolio compared to the market as a whole.
How to calculate beta of a security?
A security's beta is calculated by dividing the product of the covariance of the security's returns and the market's returns by the variance of the market's returns over a specified period. The calculation for beta is as follows:
What does a low beta mean?
A beta value that is less than 1.0 means that the security is theoretically less volatile than the market. Including this stock in a portfolio makes it less risky than the same portfolio without the stock. For example, utility stocks often have low betas because they tend to move more slowly than market averages.
Calculating Beta
- Beta is calculated using regression analysis. Numerically, it represents the tendency for a security's returns to respond to swings in the market. The formula for calculating beta is the covariance of the return of an asset with the return of the benchmarkdivided by the variance of t…
The Advantages of Beta
- To followers of CAPM, beta is useful. A stock's price variability is important to consider when assessing risk. If you think about risk as the possibility of a stock losing its value, beta has appeal as a proxy for risk. Intuitively, it makes plenty of sense. Think of an early-stage technology stock with a price that bounces up and down more than the market. It's hard not to think that stock wil…
The Disadvantages of Beta
- If you are investing based on a stock's fundamentals, beta has plenty of shortcomings. For starters, beta doesn't incorporate new information. Consider a utility company: let's call it Company X. Company X has been considered a defensive stockwith a low beta. When it entered the merchant energy business and assumed more debt, X's historic beta no longer captured the …
Assessing Risk
- The well-worn definition of risk is the possibility of suffering a loss. Of course, when investors consider risk, they are thinking about the chance that the stock they buy will decrease in value. The trouble is that beta, as a proxy for risk, doesn't distinguish between upside and downsideprice movements. For most investors, downside movements are a risk, while upside ones mean oppor…
The Bottom Line
- Ultimately, it's important for investors to make the distinction between short-term risk—where beta and price volatility are useful—and longer-term, fundamental risk, where big-picture risk factors are more telling. High betas may mean price volatility over the near term, but they don't always rule out long-term opportunities.