What does it mean when a company has a negative beta?

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 does a beta of 0.0 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 good beta for a stock?

A stock that swings more than the market over time has a beta above 1.0. 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 is the 60 month beta?

Beta is a measure of a company’s common stock price volatility relative to the market. It is calculated as the slope of the 60 month regression line of the percentage price change of the stock relative to the percentage price change of the relevant index (e.g. the FTSE All Share).

Is beta beta or 1.2 riskier?

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 a potential for higher returns while low-beta stocks pose less risk but also lower returns. If a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market.

What is an example of a negative beta?

Stocks whose prices move in the opposite direction as the stock market will have negative β. Gold and gold stocks, for example, have a negative Beta Coefficient. Investors view gold as a “safe haven” that stores value. When the stock market declines, investors take money out of stocks and invest in gold.

Why is debt beta zero?

The main usage of Debt Beta is under Capital Asset Pricing Model. This is to mainly eradicate the risk that exists because of company’s assets. Speaking of debt beta, it is assumed to be zero when calculating levered beta because debt is considered to be risk-free, unlike equity.

Are high beta stocks good?

Investing in High Beta Stocks High beta stocks can be great investments in bull markets since they are expected to outperform the S&P 500 by a marginal amount. These are highly volatile and therefore risky investments in isolation.

What do you need to know about unlevered beta?

Key Takeaways Levered beta (commonly referred to as just beta or equity beta) is a measure of market risk. Debt and equity are factored when assessing a company’s risk profile. Unlevered beta strips off the debt component to isolate the risk due solely to company assets.

What does debt to equity mean in unlevered beta?

Debt and equity are factored when assessing a company’s risk profile. Unlevered beta strips off the debt component to isolate the risk due solely to company assets. High debt-to-equity ratio usually translates to an increase in the risk associated with a company’s stock.

What does it mean when a company has a beta of one?

That is, a company with a beta of one has the same systematic risk as the broader market. A beta of two means the company is twice as volatile as the overall market, but a beta of less than one means the company is less volatile and presents less risk than the broader market.

What does it mean when a stock has a levered beta?

So, a publicly traded security’s levered beta measures the sensitivity of that security’s tendency to perform in relation to the overall market. A levered beta greater than positive 1 or less than negative 1 means that it has greater volatility than the market. A levered beta between negative 1 and positive 1 has less volatility than the market.