What is a reasonable beta?

Key Takeaways. 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 is an acceptable beta?

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 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).]

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.

Is a beta of 1.5 high?

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.

How Does Beta Work? | Beta In Stocks Explained

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 is a bad beta for a stock?

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.

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.

Is a beta of 1.1 risky?

For example, a security with a beta of 1.1 is 10% more volatile than the general market. Securities with high beta values are considered to have a strong potential return, but also a higher risk of loss. Securities with a low beta are considered to be safer, but also have a low probability of experiencing high returns.

What is a normal 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 1.3 beta high?

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. Stocks generally have a positive beta since they are correlated to the market.

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.

What does a beta of 1.15 mean?

A stock with a beta greater than one is considered more volatile than the market; less than one means less volatile. If the stock is perfectly correlated with the market, the beta equals 1. If a stock gets a beta of 1.15, it has a history of fluctuating 15% more than the market.

What does a .5 beta mean?

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%.

What does a beta of 0.7 mean?

So a stock with a beta of 0.7 would rise by 0.7% on a day that the S&P 500 rose 1%, and would fall by 0.7% on a day that the S&P 500 fell 1%. Cash effectively has a beta of zero, because its value has no correlation with any stock market index.

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.

What is Apple's beta?

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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.

What is an aggressive beta?

What is a beta? A beta close to one means that the returns on the company stock tend to have variability similar to the market return. 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.

Is a 0.8 beta good?

If a stock has a beta value less than 1.0, this is considered to be a good beta value for a stock, because it indicates that stock has a price volatility lower than the market index. In this way, a stock with a beta value less than 1.0 can be referred to as a low beta stock.

What does a beta of 0.8 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. There is more than one way to calculate betas. One of the variables in the beta calculation is how far back you go with the calculation.

Should you buy stock with low beta?

The lower the Beta value, the less volatility the stock or portfolio should exhibit against the benchmark. This is beneficial for investors for obvious reasons, particularly those that are close to or already in retirement, as drawdowns should be relatively limited against the benchmark.