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.
Is Low beta good for stock?
If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.
What does a beta of 0.7 mean?
A beta of more or less than 1 indicates that the stock should be more or less reactive than the overall market. 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.Mar 2, 2018
What does beta tell you in investing?
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).
Is Low beta good in stocks?
Therefore, investing in stocks with very low betas can help to minimize losses. Campbell Soup, Conagra and Verizon all trade at very low betas, making them less volatile than the S&P 500 index as a whole. In the case of these three dividend stocks, shareholders of each are being paid a generous and safe dividend yield.Nov 1, 2021
Is a beta less than 1 GOOD?
A beta of 1 indicates that the security's price tends to move with the market. 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. This means it is two times as volatile as the overall market.
What does a low stock beta mean?
Beta is a measure of a stock's volatility in relation to the overall market. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.
Should you buy high beta stocks?
One may wonder why beta values are important, which is a valid question. The answer to the same would be that in rising markets, stocks with higher beta values tend to outperform. However, this reality must be taken in with a grain of salt since the same high-beta stocks tend to underperform during weak market periods.
What sectors have the highest beta?
While Information Technology had the highest historical beta and risk, other cyclical sectors such as Consumer Discretionary and Industrials showed similar properties, albeit to a lesser extent.