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Stocks with a beta of less than 1 have a smoother ride as their moves are more muted than the market’s, but they’ll usually still go up when the market goes up and down when the market goes down.
If an asset has a beta above 1, it indicates that its return moves more than 1-to-1 with the return of the market-portfolio, on average; that is, it is more volatile than the market. In practice, few stocks have negative betas (tending to go up when the market goes down). Most stocks have betas between 0 and 3. [1]
Beta is a measure of volatility that indicates how closely a stock's price movement correlates with a benchmark.For example, the S&P; 500 has a beta of 1.0. Any stock that has a beta less than 1.0 ...
In this case, a negative beta just a hair under 0 doesn't have any more significance than a positive 0.01 beta would. Ferrellgas will move with gas prices more than with the broad market. Agnico ...
Betas exceeding one signify more than average "riskiness"; betas below one indicate lower than average. Thus, a more risky stock will have a higher beta and will be discounted at a higher rate; less sensitive stocks will have lower betas and be discounted at a lower rate.
Almost immediately these predictions were empirically challenged. Studies find that the correct slope is either less than predicted, not significantly different from zero, or even negative. [4] [1] Economist Fischer Black (1972) proposed a theory where there is a zero-beta return which is different from the risk-free return. [5] This fits the ...
For example, if a stock tends to show varying returns that are 50% greater than the movements of the overall market, that stock will have a beta of 1.5. The overall market has a beta of 1.0, as it ...
Most stocks have a positive covariance because they all respond similarly to macroeconomic factors. However, some firms are more sensitive to these factors than others, and this firm-specific variance is typically denoted by its beta (β), which measures its variance compared to the market for one or more economic factors.