What is a good beta in stocks?

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.

Is a beta of 1.5 good?

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. Many young technology companies that trade on the Nasdaq stocks have a beta greater than 1.

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).]

Are high beta stocks good?

High beta stocks have historically outperformed the market, which is why they hold great significance for investors. While beta values have been historically used to calculate stocks' volatility, it is not wise to depend entirely on the beta alone to measure the potential of a company.

What does a beta of 0.5 mean?

For example, a beta of 0.5 implies that a stock's movements will theoretically be about 50% of the index's movements. A stock with a beta of more than one is more volatile than the overall index. For example, a beta of 2.0 implies that the stock will move twice as much as the market.

Understanding Beta | Investopedia

Is a beta of 3 high?

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.

Is a high or low beta better?

By definition, the market itself has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the macro market. High-beta stocks (>1.0) are supposed to be riskier but provide the potential for higher returns; low-beta stocks (<1.0) pose less risk but also lower returns.

What is considered a high beta?

What are high-beta stocks? A high-beta stock, quite simply, is a stock that has been much more volatile than the index it's being measured against. A stock with a beta above 2 -- meaning that the stock will typically move twice as much as the market does -- is generally considered a high-beta stock.

When should I invest 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. They do however require a great deal of active management due to their market sensitivity. These are highly volatile and therefore risky investments in isolation.

What is a high beta value?

A high beta index refers to a market index that is made up of stocks with higher-than-average volatility as compared to the overall stock market. Some investors aim to maximize returns on investment by investing in high beta stocks, especially during periods when the overall stock market is extremely bullish.

What does a beta of 1.20 indicate?

Trading-Glossary. "A measure of a fund's risk, or volatility, compared to the market which is represented as 1.0. A fund with a beta of 1.20 is 20% more volatile than the market, while a fund with a beta of 0.80 would be 20% less volatile than the market."

What does a beta of 1.35 mean?

The market is described as having a beta of 1. 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.

What does a beta of 0.7 mean?

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.

Is negative beta good?

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. A negative beta coefficient, on the other hand, means the investment moves opposite of market direction.

How do I find high beta stocks?

Do high beta stocks outperform?

Low-beta stocks tend to rise or fall by less. Investment theory holds that, in order to induce investors to incur high-beta stocks' additional risk, they must over time produce a greater return. But in practice, according to this new research, high-beta stocks tend to outperform in just one week per quarter.

Is Apple a high beta stock?

In accordance with the recently published financial statements, Apple Inc has a Beta of 1.2. This is 13.21% higher than that of the Technology sector and 42.86% higher than that of the Consumer Electronics industry. The beta for all United States stocks is notably lower than that of the firm.

What does a beta of 0 mean?

A beta value of 0 means the stock's performance is uncorrelated with the market. You may also see beta values below 0, indicated with a negative sign. This means that the stock has a tendency to move in the opposite direction from the market as a whole.

What is a low beta stock?

A stock that is less volatile, or has fewer price swings, than the aggregate market has a beta value of less than one. A low beta value typically means that the stock is considered less risky, but will likely offer low returns as well.

What is a good alpha for a stock?

Defining Alpha

Alpha is also a measure of risk. An alpha of -15 means the investment was far too risky given the return. An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an investment outperformed, after adjusting for volatility.

How do you use beta for stocks?

Beta is a way of measuring a stock's volatility compared with the overall market's volatility. The market as a whole has a beta of 1. Stocks with a value greater than 1 are more volatile than the market (meaning they will generally go up more than the market goes up, and go down more than the market goes down).

How do you interpret beta?

Interpreting Beta

A β of 1 indicates that the price of a security moves with the market. A β of less than 1 indicates that the security is less volatile than the market as a whole. Similarly, a β of more than 1 indicates that the security is more volatile than the market as a whole.

What is a good Sharpe ratio?

This tells us that with a Sharpe ratio of 2, Portfolio B provides a superior return on a risk-adjusted basis. Generally speaking, a Sharpe ratio between 1 and 2 is considered good. A ratio between 2 and 3 is very good, and any result higher than 3 is excellent.

Can beta of a stock be negative?

Yes, beta can be negative. To see how and why, consider what beta measures: the risk added by an investment to a well diversified portfolio. By that definition, any investment that when added to a portfolio, makes the overall risk of the portfolio go down, has a negative beta.