Can Beta of a Stock be 0? And can Beta be Negative?




Capital Asset Pricing Model
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21
Melvin, USA

Can Beta of a Stock be 0? And can Beta be Negative?

Question on CAPM: I know that in the CAPM Model the Beta for a stock can be less than one. If the company has a Beta of 0.33, then it is supposed to be 3 times less risky than the overall market. But can Beta also be zero? And can it be negative?
 

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1
Pereira, Portugal
 

Can Beta be zero ?

Assuming a Beta=0 is the same as to say that the r=Rf. Then, the security under valuation has the same expected earnings as a risk free asset. Finally, the only asset with a risk free rate is assumed to be government bonds.
So, saying that some asset has Beta=0 is equivalent to say that asset is risk free or is a government bond

 
-1
CSB Nair, India
 

Stock Beta =<0

The beta can well be 0 or negative if the expected earnngs are below the risk free rate.

 
3
Thomas, USA
 

Stocks with a negative

A company with a of 1.000 has the same expected return rate as the risk free rate.
I therefore believe that CSB Nair is incorrect: if the expected earnings are just lower than the risk free rate, then the company has a between 0 and 1, but not negative.
Yet it is possible to imagine a company with a negative beta! This is (only) the case when its returns are counter-cyclical and move opposite to the market.
Of course, the beta of most companies' stock is positive. But there are financial assets which are designed to have negative betas. For example, funds that engage exclusively in short-selling make money when the market is falling and lose when the market is rising. Including these assets in your portfolio decreases your volatility.

 
2
Harold, Canada
 

Beta of a stock

A beta of one means the stock moves with the market: in other words when the market moves up ... Sign up

 
2
Walter, UK
 

Gold

Gold-related stocks are typically beta-negative.... Sign up

 
-1
Bikash, India
 

What about cash??

Assets with beta 0 are same as risk-free assets and have same expected return and not assets with be... Sign up

 
0
Liaqat Ali, Pakistan
 

CAPM

It is the theory that relates the expected return with the risk, so when we say that the beta is zer... Sign up

 
1
Anna, UK
 

CAPM

Risk-free security does not necessarily mean zero return-the return will be equal to the interest ra... Sign up

 
2
Ghanshyam
Manager, India
 

Gold Industry may have a Negative Beta

If beta < 0 then the investment's returns will move, on average, in the opposite direction to the ma... Sign up

 
0
Mukela Namushi Mubano
Accountant, Zambia
 

Inflation in CAPM

I totally agree with @Anna. Inflation effects seem to be ignored when we are dealing with risk-free ... Sign up

 
4
nitish dwivedi
Student (Other)
 

Beta Can Be Negative: Gun Companies

Friends, at the time of war when all companies profits are falling, gun companies actually are makin... Sign up

 
2
SCOTT DIAMOND, United States
 

Beta Does Not Imply No Risk!

While I would agree that safe investments have a low beta, this does not mean that if the beta is lo... Sign up

 
0
Warren D. Miller, CPA, CFA
Strategy Consultant, United States
 

Beta = 0? No Way!

Under no conditions would the beta of any for-profit enterprise = 0. As others have pointed out, tha... Sign up

   

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