Should you buy a stock with low beta? (2024)

Should you buy a stock with low beta?

Taking a Look at Beta

Is it better to have a lower beta?

A higher beta indicates a stock is more volatile than the market and carries more risk—but generally has the potential for higher returns. On the other hand, low-beta stocks typically pose less risk but yield lower returns.

What if beta is less than 1?

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 low beta mean in stocks?

Low beta stocks are stocks with a beta value that is less than 1. This means that the stock is less volatile than the market and is, therefore, less risky. Low beta stocks are good for investors who are looking for stable, long-term investments.

Is lower beta more risky?

Beta helps investors understand the systematic risk of a stock and its potential reaction to market changes. If the beta score exceeds 1, it implies a higher level of volatility, whereas a beta score below 1 indicates lower volatility.

What are the advantages of low beta stocks?

As table 1 shows, over the long term low-beta portfolios of both US and global stocks not only deliver lower volatility, as expected - but also significantly higher returns.

What is a low beta strategy?

Low beta investing (also called "low volatility investing") involves investment in stocks that have lower volatility than the market in an attempt to get higher returns, or the same return with less risk.

Does low beta mean low return?

If a stock's beta is greater than 1, then it can post more returns than the market, if it is less than 1 then returns are lower than the market, and if the beta is less than zero, then if the market is in positive return territory then the stock posts negative returns.

What is the best beta value?

The ideal beta for a stock depends on your investment objectives and risk tolerance. Generally, a beta of 1 indicates the stock moves in line with the overall market. A beta greater than 1 suggests higher volatility.

What is a good beta for a stock?

For investors who are seeking lower-risk investments, a beta close to 1 may be considered "good." For investors who have a higher tolerance for risk and are seeking higher returns, a beta greater than 1 may be considered "good."

What is an aggressive 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.

What does beta tell you about a stock?

Beta is a measure of the systematic risk involved with a stock or other investment. It can tell investors how much a stock tends to move with overall market forces, and can be a valuable tool in managing volatility in a portfolio.

Why do low beta stocks outperform?

The empirical evidence demonstrates that returns to the low-beta anomaly are well explained by exposure to other common factors, and it has only justified investment when low-beta stocks were in the value regime, after periods of strong market and small-cap stock performance, and when they excluded high-beta stocks ...

What is a good beta vs bad beta?

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.

Is it bad to have a negative beta?

So, is a negative beta good or bad? It depends on your investment goals. If you're looking for stability, a negative beta might not be what you're looking for. On the other hand, if you're looking for a stock that will go up when the market goes down, a negative beta might be right for you.

What type of companies have low beta?

Should you buy high beta stocks?

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. High beta stocks may offer greater potential profits but also include exposure to greater risk.

What stock has highest beta?

What is low beta value?

A low beta value typically means that the stock is considered less risky, but will likely offer low returns as well. The higher the beta value, the more risk you take as an investor, but the higher your chances are of a big return as well.

Should beta ratio be high or low?

In general, If the beta of a mutual fund is less than 1, then the fund is perceived as less risky compared to its benchmark. For example, the Tata Multicap fund has a beta of 0.95, hence the fund is slightly less risky compared to its benchmark.

What is the average stock beta?

If an asset has a beta above 1, it indicates that its return moves more than 1-to-1 with the return of the market-portfolio, on average; that is, it is more volatile than the market. In practice, few stocks have negative betas (tending to go up when the market goes down). Most stocks have betas between 0 and 3.

How much should beta be?

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What is a strong beta?

The higher the absolute value of the beta coefficient, the stronger the effect. For example, a beta of -. 9 has a stronger effect than a beta of +. 8.

What is the least aggressive beta?

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Is a higher beta more risky?

A stock that moves more than the market over time has a beta greater than 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks tend to be riskier but provide the potential for higher returns. Low-beta stocks pose less risk but typically yield lower returns.