Does anybody pay attention to the beta value for stocks?

[moneymaker]

Been trading stocks now for about 1 1/2 years and just noticed something called beta. Apple has a beta of .66, now will that change with dividend or volatility?

[ucodegen]

Beta is a measurement of volatility. Wikipedia has a decent explanation of beta. http://en.wikipedia.org/wiki/Beta_%28finance%29 Dividends usually reduce beta. Dividend stocks tend to be picked up by buy and hold as opposed to traders/day-traders.

[sdduuuude]

Not volatility, but relative or correlated volatility, or correlation to the general market. Some call it a measure of risk, or an indication of whether or not you can hedged away the risk of that stock by diversifying in the rest of the market.

That is – if you buy 10 stocks all with a beta of 1, you aren’t really diversified at all.

To answer your question – not many people pay attention to it. Professionals do.

[moneymaker]

Yes I read the wiki before posting, I was just wondering if anybody else really paid attention. I personally would call Apple volatile, but a beta of .66 would indicate non volatility.

[sdduuuude]

No. It does not indicate that apple is not volatile.

[dumbrenter]

Isn’t the volatility defined relative to an index? If the market goes down 10% and your stock does the same, then there is no volatility at all.

[ucodegen]

[quote=moneymaker]Yes I read the wiki before posting, I was just wondering if anybody else really paid attention. I personally would call Apple volatile, but a beta of .66 would indicate non volatility.[/quote]Actually, with a beta of 0.66, it would be ‘less volatile’ relative to related stocks. If other related stocks move up $1.00, AAPL would move $0.66 relative to market (swing movement/market volatility movement). Likewise if the market moves down $1.00, AAPL would move down $0.66.
[quote=dumbrenter]Isn’t the volatility defined relative to an index? If the market goes down 10% and your stock does the same, then there is no volatility at all.[/quote] But this is measured with a beta index of 1.0. If it moves opposite of the market, it would be -1.0.

[SK in CV]

[quote=dumbrenter]Isn’t the volatility defined relative to an index? If the market goes down 10% and your stock does the same, then there is no volatility at all.[/quote]

Beta is (in theory) a correlative indicator. If the index and the target both move the same, then the correlation would be 1, whether the delta is 1%, 10% or 50%. (And a 10% move IS the volatility.)

[sdduuuude]

Personally, I don’t like the word “volatility” at all.

It is really a correlation to how the stock moves with respect to the market. The .66 may be a result of the fact that lately, Apple has been moving downward while the market moves up so it appears somewhat disassociated with the market.

Look at how it is derived. Calculate the beta for a couple of stocks and you’ll understand better what it means.

A correlation of 0 means you can’t infer what the stock might have done by looking at the market index. I believe you could have two different securities, each with a beta of zero, each with very different volatility.

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