Seeing A Ton Of Red In Your Investment Account Lately? Blame Beta

Seeing A Ton Of Red In Your Investment Account Lately? Blame Beta
Andrew Rummer

almost 3 years ago1 min

Mentioned in story

Early this week, many of Finimize’s group chats echoed to cries of “anyone else seeing a ton of red?”

Look closer though and global stock markets – as measured by the MSCI World Index – only fell 0.7% on Monday and closed barely changed on Tuesday. 

So if you suffered heavy losses, it’s likely you’re invested in some of the most volatile parts of the stock market. 

Analysts say that volatile stocks – which tend to rise more than the wider market in good times and fall more than the market in bad times – have high beta

And many current retail favorites have incredibly high beta. Take carmaker Tesla, with its beta of 2.09. This means that when the US market as a whole rises 10%, you’d expect Tesla to climb 20.9%. But when the market drops 10%, you’d expect Tesla to tumble 20.9%. 

Other popular stocks have even higher betas: like weed stock Tilray with 2.83 and FuboTV with 2.79. (You can easily find beta for a stock listed in the statistics tab of Yahoo Finance). 

Compare these with the beta ratings of the top-weighted stocks in Invesco’s S&P 500 Low Volatility exchange traded fund: Verizon with 0.47, Bristol Myers Squibb with 0.62, and Costco with 0.65. 

Beta certainly wasn’t the only reason many widely-held stocks fell so much earlier this week: another major driver was climbing Treasury yields making stocks in high-growth companies less attractive. But beta certainly didn’t help. 

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