Beta

Beta is a statistical measure that compares the volatility of a stock against the volatility of the broader market, which is typically measured by a reference market index.

Since the market is the benchmark, the market's beta is always 1. When a stock has a beta greater than 1, it means the stock is expected to increase by more than the market in up markets and decrease more than the market in down markets. Conversely, a stock with a beta lower than 1 is expected to rise less than the market on a good day, but fall less than the market on a bad day.

Where do I find it?

Beta is available:

• for a company, in the Beta section of the Market Data view under Company Data;
• for a list of companies, in the Beta view under Comparable Analysis;
• for additional flexibility, go to Beta Calculator under Comparable Analysis;
• for full flexibility, use one of the beta models provided with the Excel add-in.

What do I need to know?

Standard beta is co-called levered, which means that it reflects the capital structure of the company (including the financial risk linked to the debt level). Unlevered beta (or ungeared beta) compares the risk of an unlevered company (i.e. with no debt in the capital structure) to the risk of the market. Unlevered beta is useful when comparing companies with different capital structures as it focuses on the equity risk. Unlevered beta is generally lower than the levered beta. However, unlevered beta could be higher than levered beta when the net debt is negative (meaning that the company has more cash than debt).

Many different betas can be calculated for a given stock. The main common variables that affect beta calculations are the time period, the reference date, the sampling frequency for closing prices, and the reference index.

Despite being rare, a stock may have a negative beta, which means the stock moves opposite the general market trend.