What factors effect beta?
Three factors that affect Beta values
- Nature of the business. Usually, the earnings of a company keep on fluctuating with time due to the business cycles.
- Financial leverage. Financial leverage is described as the debt portion of the financial structure of a company.
- Operating leverage.
How do you calculate beta factor?
Beta could be calculated by first dividing the security’s standard deviation of returns by the benchmark’s standard deviation of returns. The resulting value is multiplied by the correlation of the security’s returns and the benchmark’s returns.
What is beta in mutual fund?
Beta of a mutual fund scheme is the volatility of the scheme relative to its market benchmark. If beta of a scheme is more than 1, then scheme is more volatile than its benchmark. If beta is less than 1, then the scheme is less volatile than the benchmark.
What does a negative beta mean?
Negative beta: A beta less than 0, which would indicate an inverse relation to the market, is possible but highly unlikely. Some investors argue that gold and gold stocks should have negative betas because they tend to do better when the stock market declines.
What is a good beta value?
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 does it mean when beta is negative?
A negative beta correlation means an investment moves in the opposite direction from the stock market. When the market rises, a negative-beta investment generally falls. When the market falls, the negative-beta investment will tend to rise. This is generally true of gold stocks and gold bullion.
Is High beta good or bad?
High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns.
Is higher beta good or bad?
Is beta a good investment?
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.