Purchase Solution

Stock Betas: Stable, Volatile, or Risky

Not what you're looking for?

Ask Custom Question

If two competitive companies have the same stock beta, what does that say about the stock. Is it stable, volatile or risky? For example, Amgen and Merck have betas of 1.35.

Purchase this Solution
Solution Summary

This solution discusses the implications of two competitive companies having the same stock beta.

Solution Preview

Beta measures a stock's volatility, the degree to which its price fluctuates in relation to the overall market. In other words, it gives a sense of the stock's market risk compared to the greater market. The Beta factor measures how volatile a stock is when compared with an index. The higher the beta, the more volatile the stock is. A negative beta means that the stock moves inversely to the market so when the index rises the stock goes down and vice versa.

Stock portfolios are measured for risk using Beta. Stocks ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • The Importance of Beta

    On the other hand, if the investor is able to tolerate higher risk, he or she could invest in stocks with higher betas.

  • Variable Rates of Return

    It can be seen, on occasion, where a risky stock provides spectacular returns rapidly. This is not the norm, but it does happen. Stable stocks are almost incapable of this kind of speedy return.

  • The Capital Asset Pricing Model - Beta

    Given the stability of revenues, we can say that this sector is less risky. Revenues are predictable and stable and hence this sector has a lower beta of 0.5.

  • Asset Betas

    The reality is that past volatility of a stock does not necessarily predict the current or future potential performance of the stock, leaving it to be a questionable measure of risk.

  • Investment Questions

    Are the following statements true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile securities. c.

  • Lansing outperform the market on a risk-adjusted basis

    On the other hand, if b = 1.7 or greater than 1.0, then the stock would be 0.7 as volatile as an average stock, so a portfolio of such stocks would be 0.7 times as risky as an average portfolio.

  • Beta

    More risky equities though, like Internet stocks, have betas greater than 1.

  • Diversification in Stock Portfolios for a risk averse investor

    So even when the economy is performing badly some of the stocks in your portfolio will probably rise and some of them may fall or remain stable.

  • Capital Asset Pricing Model of Boeing Co.

    BA's stock is risky and thus investors are asking for a return more than that of the market. c. Two other companies are 1. Lockheed Martin with a beta of 1.07 (http://finance.yahoo.com/q/ks?s=LMT) 2.

View More Related Solutions