What stocks have the highest beta?
- Microsoft has a beta of around 1.25. This means an investor can reasonably expect that this stock is 25% more volatile than the market. ...
- Walt Disney Company has a beta right around 1.03. This puts its volatility right in line with the broader market. ...
- In contrast, Duke Energy has a beta of around 0.27. ...
What is the lowest beta stock?
The beta coefficient can be interpreted as follows:
- β =1 exactly as volatile as the market
- β >1 more volatile than the market
- β <1>0 less volatile than the market
- β =0 uncorrelated to the market
- β <0 negatively correlated to the market
What is a negative beta stock?
When stocks have a negative beta coefficient, this means the investment moves in the opposite direction than the market. A high beta indicates the stock is more sensitive to news and information.
What is a low beta investment?
Low beta stocks are those that have low volatility. They receive a beta score of less than 1. When a stock receives a score of higher than 1, it is more volatile than the S&P 500. It can be easy to lose your money with these high beta stocks. So, low beta stocks are slow-growing, and much safer to invest in. Plus, there’s an interesting experiment done by Tony Yiu. In it, he compared low beta stocks to high ones.
What is considered low beta stock?
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.
Is Low beta good for stock?
Any stock that has a beta less than 1.0 can be said to be less volatile than the broader market. What this means in practice is that low-beta stocks tend to lag the broader market when stocks are going up, but – critically – they also hold up better when the S&P 500 is in decline.
Is a beta of 0.5 good?
A beta of less than 1 means it tends to be less volatile than the market. Many young technology companies that trade on the Nasdaq stocks have a beta greater than 1. Many utility sector stocks have a beta of less than 1. Essentially, beta expresses the trade-off between minimizing risk and maximizing return.
What is low beta investing?
Low beta investing (also called "low volatility investing") involves investment in stocks that have lower volatility than the market in an attempt to get higher returns, or the same return with less risk.
Are low beta stocks safer?
High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.
Does low beta mean low volatility?
If we perform the same exercise for the S&P 500, of the 252 stocks below the mean in volatility, less than 65% (159) qualify as low beta.
What does a beta of 0.4 mean?
For a fund with a beta of 0.4, if the market rises 1%, the fund will rise on average, 0.4%. The relationship is the same in a falling market. (Please note that funds can have a negative beta, meaning that on average they rise when the market falls and vice versa)."
What is an ideal beta?
Stocks with a value greater than 1 are more volatile than the market (meaning they will generally go up more than the market goes up, and go down more than the market goes down). Stocks with a beta of less than 1 have a smoother ride as their moves are more muted than the market's.
What does a beta of 0.3 mean?
The beta for a stock describes how much the stock's price moves compared to the market. If a stock has a beta above 1, it's more volatile than the overall market. For example, if an asset has a beta of 1.3, it's theoretically 30% more volatile than the market.
What is a good beta for a stock?
The market as a whole has a beta of 1. Stocks with a value greater than 1 are more volatile than the market, and stocks with a beta of less than 1 have a smoother ride. Beta operates as a good comparison point to a broader index fund, but it doesn't offer a complete portrait of a stock's risk.
What companies have a low beta?
Low Beta Dividend Stocks with High YieldsPhillips 66 Partners LP (NYSE:PSXP)Lumen Technologies, Inc. (NYSE:LUMN)Broadmark Realty Capital Inc. (NYSE:BRMK)DallasNews Corporation (NASDAQ:DALN)Chimera Investment Corporation (NYSE:CIM)
Which stock has highest negative beta?
Negative Beta StocksCompanyCurrent PriceAverage VolumeSKYX SQL Technologies$2.06 +3.0%151,899CMPI Checkmate Pharmaceuticals$10.50142,261ISPO Inspirato$4.28 -10.8%436,008SGBX SG Blocks$1.76 -2.2%37,47439 more rows
What is low beta stock?
Low Beta Stocks. Beta is the result of a calculation that measures the relative volatility of a stock in correlation to a particular standard. For U.S. stocks that standard is usually, but not always, the S&P 500. Beta is a form of regression analysis and it can be useful for investors regardless of their risk tolerance.
What is beta analysis?
Beta is a form of regression analysis and it can be useful for investors regardless of their risk tolerance . Beta is considered one of the few data points that can be beneficial for practitioners of fundamental analysis and technical analysis. This page lists stocks that have unusually low beta calculations, meaning there is little correlation ...
What is beta in stock market?
In the simplest terms, beta is a tool that compares how volatile a stock is in comparison to the overall market. The stock market is the “control” and has a definitive benchmark beta of 1.0, while each individual security is the “variable,” with a beta that varies in terms of how much the stock moves around. A stock that is more volatile ...
What does beta tell you?
Beta tells you how risky a stock is by comparing its activity to that of the market. It’s important to combine financial signifiers like beta and even professional analyst ratings with fundamental analysis of a company. Alternatively, you can turn over investment decisions to a money manager.
What does beta mean in business?
They are well run, well-financed, and have low amounts of debt. Beta says nothing about the degree of competence with which a company is run, although competently-run, long-standing companies usually do have a lower beta score.
What does covariance mean in stock market?
Covariance represents how similar or dissimilar two numbers are in their movements —in this case, a stock is being compared to the market. Positive numbers indicate that their movement is similar. Negative numbers indicate that their movements are different.
Is it safe to buy low beta stocks?
Low Beta stocks are safer in terms of price when the market is down —they match the market, and don’t wildly plummet while the market is coasting. However, when the market is up, the same logic applies: these stocks gain less than some of their more volatile counterparts.
What are Low Beta Stocks?
Low beta stocks are those that have low volatility. They receive a beta score of less than 1. When a stock receives a score of higher than 1, it is more volatile than the S&P 500. It can be easy to lose your money with these high beta stocks.
How Can You Use Low Beta Stocks to Produce Income?
There are a few ways you can use low beta stocks to produce consistent income. The first is by making your investment and waiting. You’ll make money as the price of the stock increases. Then, every once in a while, you can take a percentage of your earnings as income.
How to Find Low Beta Stocks
Of course, you can go to your search engine and type in something like “best low beta stocks.” Many posts will come up, and advise you on wise investments to make.
About Vanessa Adelman
Vanessa Adelman graduated with an Interdisciplinary degree. She majored in Entrepreneurship, Painting, Music and Film. Shortly after, she received a copywriting mentorship with Mark Morgan Ford. Then, she earned her AWAI Verification. Now, Vanessa freelances in the financial direct response industry. She’s been investing since 2016.
What is beta in stocks?
What Is Beta? Beta is a measure of a stock's volatility in relation to the overall market. By definition, the market, such as the S&P 500 Index, has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market.
What does beta mean in investing?
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 downside price movements. For most investors, downside movements are a risk, while upside ones mean opportunity.
What is beta in CAPM?
Beta is a component of the capital asset pricing model (CAPM), which is used to calculate the cost of equity funding. The CAPM formula uses the total average market return and the beta value of the stock to determine the rate of return that shareholders might reasonably expect based on perceived investment risk.
Why is beta important?
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.
Why does beta change over time?
A stock's beta will change over time because it compares the stock's return with the returns of the overall market. Benjamin Graham, the "father of value investing," and his modern advocates tried to spot well-run companies with a "margin of safety"—that is, an ability to withstand unpleasant surprises.
Why do analysts use beta?
Analysts use it often when they want to determine a stock's risk profile. However, while beta does say something about price risk, it has its limits for investors looking to determine fundamental risk factors.
How to calculate beta?
The formula for calculating beta is the covariance of the return of an asset with the return of the benchmark divided by the variance of the return of the benchmark over a certain period.
What does a small beta mean?
A small value of Beta (something less than 1.0) indicates a stock that moves in the same direction as the benchmark, but with smaller relative changes. Here’s a look at the formula: The numerator is the covariance of the asset in question with the market, while the denominator is the variance of the market.
What does a beta of 2.0 mean?
A Beta of 2.0 means that moves in the security should be twice as large in magnitude as the benchmark and in the same direction , while a negative Beta means that movements in the security and benchmark tend to move in opposite directions or are negatively correlated .
What is the volatility of a stock against a benchmark called?
The volatility of a security or portfolio against a benchmark is called Beta . In short, Beta is measured via a formula that calculates the price risk of a security or portfolio against a benchmark, which is typically the broader market as measured by the S&P 500. Here’s how to read stock betas:
Why is beta important?
Beta is helpful in understanding the overall price risk level for investors during market downturns in particular . The lower the Beta value, the less volatility the stock or portfolio should exhibit against the benchmark.
What does 1.0 mean in stock?
A beta of 1.0 means the stock moves equally with the S&P 500. A beta of 2.0 means the stock moves twice as much as the S&P 500. A beta of 0.0 means the stocks moves don’t correlate with the S&P 500. A beta of -1.0 means the stock moves precisely opposite the S&P 500.
How to calculate beta?
Here’s an example of the data you’ll need to calculate Beta: 1 Risk-free rate (typically Treasuries at least two years out) 2 Your asset’s rate of return over some period (typically one year to five years) 3 Your benchmark’s rate of return over the same period as the asset
Should lower beta stocks outperform?
The conventional wisdom would suggest that lower Beta stocks should underperform the broader markets during uptrends and outperform during downtrends, offering investors lower prospective returns in exchange for lower risk. However, history would suggest that simply isn’t the case.
What is Beta?
In investing, the beta is a number that tells investors how volatile a stock is compared to the overall stock market. The market moves up and down every single day and the beta can help investors know the volatility profile of a stock.
Importance of Beta for Investing
The beta of a stock is an important investing metric that provides insight into the volatility of a stock. If you’re generally risk-averse and invest in individual equities, it’s important to take a look at the beta of stock to determine how it compares to the rest of the market.
What is Considered a Low Beta Stock?
A stock with a beta of less than 1 is considered less volatile than the overall market. A beta under .50 is considered half as volatile as the regular market. This means that if the market rallied 10%, the stock would only rally 5%. This would be considered a low beta stock.
How to Find Low Beta Stocks With Finviz
Below is the step-by-step process to use Finviz to find low beta stocks to invest in.
Bottom Line
Overall, finding low beta stocks can be a great way to diversify your investment portfolio into less volatile assets. They are also a great way to reduce risk if you think that the overall market may be in a position to underperform.
What is beta in stocks?
Beta is a measure of volatility that compares a stock's historic price swings to those in the market as a whole.
Is valuation relevant in growth stocks?
Valuation, meanwhile, does not appear to be relevant. “In most cases, the better performing Growth stocks happened to have higher valuations, which did not seem to be a driver of performance,” Tranhan wrote in a note to clients, as quoted by Barron's.
Is the S&P 500 up?
For the month-to- date through Sept. 25, 2019, the S&P 500 Growth Index was up by a scant 0. 60%, versus a 3.64% gain for the S&P 500 Value Index, and a 2.00% advance for the S&P 500 Index (SPX) as a whole, per S&P Dow Jones Indices. Some Wall Street strategists theorize that the bottoming out of yields on U.S. Treasury securities is driving the rotation, Bloomberg reports. Rising fears about a recession sent yields down, and investors sought refuge in growth and high dividend stocks. Now yields are up, recessionary fears are waning, and investors are reversing those defensive trades .
What does low beta mean in stocks?
Regardless, the beta says a lot of useful things about a stock. For example, a low beta could mean that an investment has low volatility when compared to the market as a whole. However, it could mean that an investment is volatile, but that its volatility has little connection to the market as a whole. For example, the stocks of utilities tend ...
Why are gold stocks low beta?
Meanwhile, gold and gold stocks often have low betas as well because their price movements are not necessarily connected to the movements of the market as a whole. Compared to these examples, a high beta is interesting because it indicates an investment isn’t just more volatile when compared to the market as a whole but also has its movements ...
What does a beta of 1 mean?
As a result, an investment portfolio representing the market as a whole should have a beta of 1, whereas other investments can cover a rather impressive range of numbers. Generally speaking, a beta between 0 and 1 means that an investment is less volatile than the market as a whole, whereas a beta that is bigger than 1 means ...
What is beta in investing?
For those who are curious, the beta is a measurement of an investment’s volatility under certain circumstances. To be exact, it measures the tendencies of an investment’s return to change in response to changes in the market as a whole.
Is beta a good indicator of future value?
As a result, the current beta of an investment is not necessarily a good indicator of what an investment’s beta will be like in the future, thus making it even more incomplete when used to gauge an investment overall value. With that said, it is important to note that the beta is interesting in one other sense as well.
Is gold a negative beta?
Theoretically, even negative betas indicating an inverse relationship with the market as a whole are possible, though there is some contention over whether gold and gold stocks can actually be considered as having negative betas.
Can beta go higher than 100?
Likewise, it is possible for a beta to go as high as a 100, but in practice, that shouldn’t happen because the investment would go to 0 upon the slightest decline in the market as a whole.
CAPM
CAPM (Capital Asset Pricing Model) is basically every MBA’s favorite equation — it’s used all over Wall Street and in many corporation’s finance departments as well.
Low Beta Beat High Beta Prior To 2020
I split the stocks in the S&P 500 into two buckets using the following process:
Next Time
Next time, we will see what happens when 2020 arrives. And I’ll also venture a few guesses as to what might happen going forward.
What Is Beta?
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 the return of the benchmark over a certain period. Beta=CovarianceVariance\text{Beta} = \frac{\text…
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.