What is a good beta for a stock?
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 a Good Beta Value for a Stock? Whether or not a stock has a “good†beta value depends on what you are looking for in a stock. If you're risk averse, then look for a stock with a beta value at or below 1.0. If you're looking for something more exciting, then consider a stock with a value of above 2.0.
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.
Suppose, the beta ratio of a specific Mutual Fund is 0.7 or 70%; it means the fund is 0.3 or 30% less volatile than the benchmark index. A Beta ratio value of 1 indicates a lower risk and lower growth potential compared to ratios at par or above 1.
Beta = 1 – Power. Values of beta should be kept small, but do not have to be as small as alpha values. Values between . 05 and . 20 are acceptable.
Examples of beta
Real estate investment trust, or REIT, Realty Income (O 1.19%) has a beta of 0.8, indicating that it is significantly less volatile than the S&P 500. So, if you're looking to lower the overall volatility in your portfolio, a stock like this could be a good choice.
High-beta stocks are those with a beta greater than 1, implying that they show a great degree of price movement – upward or downward. They are therefore high-risk investments with high volatility.
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.
| Symbol | Company | Beta |
|---|---|---|
| APA | APA Corp (US) | 3.3823 |
| CZR | Caesars Entertainment Inc | 2.8782 |
| DVN | Devon Energy Corp | 2.2698 |
| MRO | Marathon Oil Corp | 2.2298 |
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 0.5 a good beta?
Betas larger than 1.0 indicate greater volatility - so if the beta were 1.5 and the index moved up or down 1%, the stock would have moved 1.5%, on average. Betas less than 1.0 indicate less volatility: if the stock had a beta of 0.5, it would have risen or fallen just half-a-percent as the index moved 1%.
For example, a stock with a beta value of 0.8 means that stock is only 80% as volatile with its price swings compared with the overall market index. Another way to look at this is that the stock is 20% less volatile than the overall stock market.
Due to its zero-beta characteristics, gold is recognized as a hedging instrument.
The main reason for this is that growth stocks, with low average returns, have high betas with the market portfolio; but their high betas are predominantly good betas, with low risk prices. Value stocks, with high average returns, have higher bad betas than growth stocks do.
A Beta value of 1.0 indicates that the investment is as volatile as the baseline index. If the Beta value is 1.3, the investment is 30% more unstable than the benchmark. If the Beta is 0.7, that means the stock is 70% less unstable than the index.
A fund can also have a beta that is lower than the benchmark index. In that case, if the fund's beta is 0.9, an investor can expect the fund to perform 10% worse than the index in up markets, and 10% better in down markets. For example, if the index gains 10%, the fund would be expected to gain 9%.
Last Update: April 2023
Deposit betas measure the sensitivity of a bank's deposit cost to changes in the short-term interest rate. For example, a deposit beta of 0.4 means that a bank raises its average deposit rate by 40 bps for a 100 bps increase in the short-term interest rate.
A beta of less than 1 means that the security is less volatile than the market. A beta of more than 1 means the security is more volatile than the market overall. Indeed, when thinking about risk as the possibility of a stock losing value, beta becomes a proxy for risk.
A stock that has a market value above 1.0 is considered high-beta, whereas a stock with a market value lower than 1.0 is considered as low-beta. The beta, in any market across the world, is 1.0. Investors have to figure out a way to maintain exposure to equities, with the recent volatility in the stock market.
A high beta index refers to a market index made up of stocks with higher-than-average volatility compared to the overall stock market. Examples include the S&P 500 High Beta Index, the TSX Composite High Beta Index, the Hang Seng High Beta Index, and the S&P Emerging Markets High Beta Index.
What is a good dividend yield?
The average dividend yield on S&P 500 index companies that pay a dividend historically fluctuates somewhere between 2% and 5%, depending on market conditions. 7 In general, it pays to do your homework on stocks yielding more than 8% to find out what is truly going on with the company.
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.
Beta is a slang insult for or describing a man who is seen as passive, subservient, weak, and effeminate.
Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent.
Most stocks have betas between 0 and 3. Treasury bills (like most fixed income instruments) and commodities tend to have low or zero betas, call options tend to have high betas (even compared to the underlying stock), and put options and short positions and some inverse ETFs tend to have negative betas.
