Question: What Is A Good Beta?

What does a 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 is a high beta?

A high level of volatility and therefore risk; used to refer to investments. While high-beta investments tend to outperform the market when the market is going up, they also will accelerate their losses when the market moves down. Stocks with a beta above 1 are considered to have a high-beta. See also beta.

How do you interpret Beta?

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.

Why is debt beta zero?

The beta of debt βD equals zero. This is the case if debt capital has negligible risk that interest and principal payments will not be made when owed. The timely interest payments imply that tax deductions on the interest expense will also be realized—in the period in which the interest is paid.

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 does a beta of 1 mean?

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. … Say a company has a beta of 2.

What does a negative beta mean?

A negative beta correlation would mean an investment that moves in the opposite direction from the stock market. When the market rises, then a negative-beta investment generally falls. When the market falls, then the negative-beta investment will tend to rise.

What has a beta of zero?

A zero-beta portfolio would have the same expected return as the risk-free rate. 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 the Alpha Beta?

Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.

Is beta a good measure of risk?

Beta is a measure of a stock’s volatility in relation to the overall market. … If a stock moves less than the market, the stock’s beta is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.

What does a beta of 0.8 mean?

Beta is a score that measures a stock’s volatility or risk against the rest of the market. … For example, a stock with a beta of 0.8 would be expected to return 80 percent as much as the overall market. A stock with a beta of 1.2 would move 20 percent more than the overall market.

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 does beta stand for?

BETAAcronymDefinitionBETABulletin of Experimental Treatments for AIDSBETABreak It Early Test ApplicationBETABritish Equestrian Trade AssociationBETABeirut for the Ethical Treatment of Animals (est. 2004; Beirut, Lebanon)13 more rows

What does beta mean in relationship?

Betas, then, are more of a laid-back support system. “They’re relationship-focused, play a supporting role, make good friends, are nurturing, and are usually more insecure and nervous-minded than alphas.”

What does a beta of 0.7 mean?

A beta of more or less than 1 indicates that the stock should be more or less reactive than the overall market. … For example, Johnson & Johnson has a beta of 0.7, meaning that it is less volatile than the overall market, while Amazon.com has a beta of 1.6, indicating that investors should expect higher volatility.

What does a beta of 0.9 mean?

A beta that is greater than 1.0 means that the fund is more volatile than the benchmark index. A beta of less than 1.0 means that the fund is less volatile than the index. … Conversely, a fund with a beta of 0.9 should return 9% when the market goes up 10%, but it should lose only 9% when the market drops 10%.

What stock has the highest beta?

Here’s a look at the eight S&P 500 stocks with the highest betas, according to Finviz.Advanced Micro Devices, Inc. … United Rentals, Inc. … Freeport-McMoRan Inc (NYSE: FCX), 2.51 beta.Devon Energy Corp (NYSE: DVN), 2.38 beta.Marathon Oil Corporation (NYSE: MRO), 2.31 beta.SVB Financial Group (NASDAQ: SIVB), 2.19 beta.More items…

What affects a company’s beta?

A company’s debt level impacts its beta, which is a calculation investors use to measure the volatility of a security or portfolio. … If a company increases its debt to the point where its levered beta is greater than 1, the company’s stock is more volatile than the market.