What is a good beta for a stock?
Beta is a concept that measures the expected move in a stock relative to movements in the overall market. 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 1.5 mean?
Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock’s excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).]
What does a β of 1.3 mean?
Definition: Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. For example, if a stock’s beta value is 1.3, it means, theoretically this stock is 30% more volatile than the market.
What does a beta of 0.5 mean?
A beta of less than 1 means it tends to be less volatile than the market. If a stock had a beta of 0.5, we would expect it to be half as volatile as the market: A market return of 10% would mean a 5% gain for the company.
Is a high beta good or bad?
A high beta means the stock price is more sensitive to news and information, and will move faster than a stock with low beta. In general, high beta means high risk, but also offers the possibility of high returns if the stock turns out to be a good investment.
What is a high beta value?
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. Technology stocks and small cap stocks tend to have higher betas than the market benchmark.
Is a beta of 1.20 good?
A fund with a beta of 1.20 is 20% more volatile than the market, while a fund with a beta of 0.80 would be 20% less volatile than the market.” A beta of greater than 1.0 indicates that the investment is more volatile than the market, and less than 1.0 is less volatile than the market.”
What does a stock beta of 0 mean?
A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. Such a portfolio would have zero correlation with market movements, given that its expected return equals the risk-free rate or a relatively low rate of return compared to higher-beta portfolios.
What is a beta coefficient What do beta coefficients of 0.5 1.0 and 1.5 mean?
Answer and Explanation: The beta coefficient of 0.5 means the investment portfolio is less volatile as compared to the market. The beta of 1.0 means the volatility of the investment portfolio is similar to the market, and the beta of 1.5 represents the portfolio’s return is 1.5 times that of the market return.
When should I invest in high beta stocks?
High-beta stocks can be used for generating high returns but they also have significant downside risk when markets fall. Understanding beta and its uses can be important for growth investors seeking to identify the best-performing stocks at large.
Should you invest in high beta stocks?
High Beta stocks are not a sure bet during bull markets to outperform, so investors should be judicious when adding high Beta stocks to a portfolio, as the weight of the evidence suggests they are more likely to under-perform during periods of market weakness.
Is 1.5 A high beta?
A high beta (greater than 1.0) indicates moderate or high price volatility. A beta of 1.5 forecasts a 1.5% change in the return on an asset for every 1% change in the return on the market.
How do you calculate beta of stock?
Calculate the stock’s Beta by dividing the covariance of all of percentage change values for both the stock and the index by the variance of the percentage change values for just the stock.
What is the formula for beta of a stock?
Stock’s Beta is calculated as the division of covariance of the stock’s returns and the benchmark’s returns by the variance of the benchmark’s returns over a predefined period. Below is the formula to calculate stock Beta. Stock Beta Formula = COV(Rs,RM) / VAR(Rm)
How do you calculate beta coefficient?
Beta coefficient is calculated by dividing the covariance of a stock’s return with market returns by variance of market return. Covariance equals the product of standard deviation of the stock return, standard deviation of the market return and correlation coefficient.
What stock has the highest beta?
As shown below, Genworth Financial ( NYSE :GNW) is currently the S&P 500 stock with the highest beta.