Unit 6 Discussion- MT480

docx

School

Purdue Global University *

*We aren’t endorsed by this school

Course

480

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

Uploaded by AgentLightningAnteater25

Topic: Is Positive Beta Better Than Negative Beta? A beta factor represents risk in a financial instrument or commodity. The risk involved here is volatility risk, which will give you an understanding of how the security is expected to move in the market. Understanding volatility can help you build portfolios that will meet investment goals.  Explain the reasons for changes in beta and explain how one would use positive and negative betas to build a portfolio. Be sure to reference volatility.  Please provide an example of negative beta. Your initial discussion post must include one outside resource, which may include the Internet or Library, and must be cited according to current APA formatting. First a beta is a measure of a stock’s volatility in relation to the overall market. Essentially if you look at the S&P 500 it has a beat of 1.00 and all other stocks are measured against that in how much they deviate from the market (Liberto, 2021) . If a stock has less than 1.00 it is less volatile than those with greater than 1.00. An investor can utilize positive and negative betas to help diversify the volatility within their portfolio. Short term investing is better to keep in low-beta stocks so you can access funds easily. Day traders tend to invest in high-betas as these are more volatile and offer bigger payouts. An example of a negative beta would be inverse ETFS that allow investors to make money when the market declines without selling anything short. An investor could also utilize a put option, which makes money off the decline of a stock price. Both ways allow investors to sell at a price and repurchase at a different price to make money. Gold could be considered a negative beta as it moves at a -0.15 beta ( Barrick Gold Corp (GOLD) Stock Price & News , n.d.) or even GameStop as it closed it’s day at -0.18 ( GameStop Corp (GME) Stock Price & News , n.d.) . Barrick Gold Corp (GOLD) Stock Price & News . (n.d.). Google Finance. Retrieved December 16, 2023, from https://www.google.com/finance/quote/GOLD:NYSE? sa=X&sqi=2&ved=2ahUKEwiJh9D585KDAxU_oWoFHUg2A7MQ3ecFegQI KhAh

GameStop Corp (GME) Stock Price & News . (n.d.). Google Finance. Retrieved December 16, 2023, from https://www.google.com/finance/quote/GME:NYSE? sa=X&ved=2ahUKEwjB3fbl8pKDAxWdmGoFHWvZDrYQ3ecFegQIPRAh Liberto, D. (2021, May 4). What Beta means when considering a stock’s risk . Investopedia. https://www.investopedia.com/investing/beta-know-risk/ Reply: Interesting that you brought up utilities as an example, truly forget that these are low betas that can diversify your portfolio. The ratio of positive and negative betas per portfolio is very dependent on the investors’ goal as well as their industry. There are people who take on the volatility risk of start ups only and get rewarded big but also can take huge hits as well. On the opposite end a company may go through a merger and their high risk may be turned into a low-risk situation dependent on the merger specs. Reply: Great explanation of Beta and explaining how negative and positive betas function and provide your portfolio with a diverse market strategy. Gold is usually an example of a negative beta as it tends to go against the market while also giving low volatility. Do you think it is worth investing in more negative betas in hopes to gain bigger payouts?

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version