Is a higher beta better?

High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.

Is beta higher than 1 good or bad?

A beta greater than 1 indicates a stock's price swings more wildly (i.e., more volatile) than the overall market. A beta of less than 1 indicates that a stock's price is less volatile than the overall market. A beta of 1 indicates the stock moves identically to the overall market.

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 does a beta of 0.9 mean?

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.

What does a beta of 0.6 mean?

Beta measures the volatility of a security relative to the market, so a beta of 0.6 indicates that the security is less volatile than the market.

Understanding Beta | Investopedia

What does a beta of 1.3 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.

Is 1.5 beta risky?

A beta value of 1.5 indicates that the price of the stock is more volatile than the market. In fact, it is assumed to be 50% more volatile than the market. Tech stocks and small caps tend to have high betas.

Is a beta of 1.2 risky?

Beta, which measures an asset's volatility and can be used to gauge risk, can be used in determining expected return. If a stock has a beta of 1.2, it might be considered 20 percent riskier than the benchmark and therefore should compensate investors with a higher expected return.

What beta is too high?

A beta of 1.5 is considered to be a high beta stock. This is because a beta greater than 1 indicates that the stock is more volatile than the market, and therefore carries a greater level of risk.

How high is too high of a beta?

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 is a good beta for a stock?

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. Securities with a negative beta, which is unusual, will typically move inversely to the market.

Is a beta of .5 good?

A beta lower than one suggests that a stock is less risky than the market. A beta of . 5 suggests that the stock is 50% less volatile than the market. Adding this type of stock to a portfolio lowers the overall risk but has a similar effect on potential return.

What does a beta of 0.45 mean?

Examples of beta

As an example, consider an electric utility company with a β of 0.45, which would have returned only 45% of what the market returned in a given period.

What does a beta of .80 mean?

For example, a stock with a beta of 0.8 would be expected to return 80% as much as the overall market. A stock with a beta of 1.2 would move 20% more than the overall market.

What does a beta of 0.70 mean?

Any beta less than 1 denotes lower volatility and higher than 1 denotes more volatility compared to the benchmark index. For example, if your mutual fund portfolio XYZ has a beta of 0.70, it denotes lower volatility. This means that for every rise or fall of 1 in the market, the value of XYZ may rise or fall by 0.70.

What does a beta of 0.8 indicate?

The overall market has a beta of 1.0, as it is the benchmark by which the varying returns of individual stocks are measured. So, a stock that is 20% less volatile than the overall market will have a beta of 0.8.

What does a beta of 0.05 mean?

For example, if beta risk is 0.05, there is a 5% likelihood of inaccuracy. Beta risk is sometimes called "beta error" and is often paired with "alpha risk," also known as a Type I error.

Is 2 a high beta?

A stock that is more volatile than the market over time has a beta greater than 1.0 and is a high-beta stock. High-beta stocks may be riskier, but provide the potential for higher returns. If a stock moves less than the overall market's volatility, that stock is a low-beta stock with a measurement of less than 1.0.

Is a beta of 2 bad?

A beta of two means the stock is twice as volatile as the overall market. A beta of 0.50 means the stock is half as volatile. If the S&P 500 index rises or falls 10%, you'd expect a stock with a beta of two to move 20%. A stock with a beta of 0.50 would typically move just 5% when the benchmark index moves 10%.

What happens when a beta is greater than 1?

If beta is greater than one, the returns on the company stock are more volatile than the market return. A company stock with beta greater than one is called an aggressive stock. If beta is less than one, the returns on the company stock are less volatile than the market return.

Does a high beta mean a low alpha?

Many investors prefer a high alpha (or returns in excess of the benchmark's returns) alongside a low beta (implying that their investment is less volatile than the benchmark). This infers returns above market returns without the high volatility risk of large upward or downward swings in performance.

What is Amazon's beta?

Amazon Beta Analysis

Amazon's Beta is one of the most important measures of equity market volatility. Beta can be thought of as asset elasticity or sensitivity to market. In other words, it is a number that shows the relationship of an equity instrument to the financial market in which this instrument is traded.

Does a higher beta mean more sensitive?

High beta index companies exhibit greater sensitivity than the broader market. Sensitivity is measured by the beta of an individual stock. A beta of 1 indicates the asset moves in line with the market.

What does a beta of 0.2 mean?

If your industry has a beta of 0.2, it is only 20% as risky as the index. That means if the S&P 500 loses 10%, your industry only loses about 2%.

What does a 1.23 beta mean?

A Beta of 1.23 means that; a 1% move in the index will result in a 1.23% movement in the stock price. Beta is calculated not on the price or the index values but on the daily price returns versus the index returns.