A stock had a 12 percent return last year, a year when the overall stock market declined. Does this mean that the stock has a negative beta and thus very little risk if held in a portfolio? Explain
2007-10-02 11:46:36 · 2 answers · asked by spanishfly_100 1 in Business & Finance ➔ Investing
No, there are two problems with this observation. First, beta is the correlation coefficient. It means that x tends to move with y at a particular magnitude. It does not mean that in each observation they will move in the same direction, only that they will tend to.
Second, beta analysis is unfortunately still taught, but it does not work. Ignore it.
2007-10-02 12:18:58 · answer #1 · answered by OPM 7 · 1⤊ 1⤋
A beta of less than 1 means that the security will be less volatile than the market
2007-10-02 18:53:46 · answer #2 · answered by goldenboyblue 3 · 0⤊ 0⤋