Up to date on July twenty first, 2025 by Bob CiuraSpreadsheet knowledge up to date each day
On the planet of investing, volatility issues.
Buyers are reminded of this each time there’s a downturn within the broader market and particular person shares which can be extra risky than others expertise monumental swings in value in each instructions.
That volatility can improve the chance in a person’s inventory portfolio relative to the broader market.
The volatility of a safety or portfolio in opposition to a benchmark – known as Beta. Briefly, Beta is measured by way of a components that calculates the worth danger of a safety or portfolio in opposition to a benchmark, which is usually the broader market as measured by the S&P 500 Index.
It’s useful in understanding the general value danger degree for traders throughout market downturns particularly.
Right here’s learn how to learn inventory betas:
A beta of 1.0 means the inventory strikes equally with the S&P 500
A beta of two.0 means the inventory strikes twice as a lot because the S&P 500
A beta of 0.0 means the shares strikes don’t correlate with the S&P 500
A beta of -1.0 means the inventory strikes exactly reverse the S&P 500
Apparently, low beta shares have traditionally outperformed the market… However extra on that later.
You’ll be able to obtain a spreadsheet of the 100 lowest beta shares (together with monetary metrics like price-to-earnings ratios and dividend yields) by clicking on the hyperlink beneath:
This text will talk about learn how to calculate beta, the distinction between high-beta and low-beta shares, in addition to particular person evaluation of the one inventory within the S&P 500 Index with adverse beta proper now.
The desk of contents supplies for straightforward navigation of the article:
Desk of Contents
Excessive Beta Shares Versus Low Beta
Beta is useful in understanding the general value danger degree for traders throughout market downturns particularly. The decrease the Beta worth, the much less volatility the inventory or portfolio ought to exhibit in opposition to the benchmark.
That is helpful for traders for apparent causes, significantly these which can be near or already in retirement, as drawdowns needs to be comparatively restricted in opposition to the benchmark.
Low or excessive Beta merely measures the dimensions of the strikes a safety makes; it doesn’t imply essentially that the worth of the safety stays almost fixed.
Securities will be low Beta and nonetheless be caught in long-term downtrends, so that is merely yet one more instrument traders can use when constructing a portfolio.
Intuitively, it could make sense that prime Beta shares would outperform throughout bull markets. In spite of everything, these shares needs to be reaching greater than the benchmark’s returns given their excessive Beta values.
Whereas this may be true over quick durations of time – significantly the strongest components of the bull market – the excessive Beta names are usually the primary to be bought closely by traders.
This glorious paper from the CFA Institute theorizes that that is true as a result of traders are ready to make use of leverage to bid up momentum names with excessive Beta values and thus, on common, these shares have decrease potential returns at any given time.
As well as, leveraged positions are among the many first to be bought by traders throughout weak durations due to margin necessities or different financing issues that come up throughout bear markets.
Whereas excessive Beta names could outperform whereas the market is robust, as indicators of weak point start to indicate, excessive Beta names are the primary to be bought and usually, far more strongly than the benchmark.
Proof suggests that in good years for the market, excessive Beta names seize 138% of the market’s complete returns.
Due to this fact, if the market returned 10% in a 12 months, excessive Beta names would, on common, produce 13.8% returns. Nonetheless, throughout down years, excessive Beta names seize 243% of the market’s returns.
In an identical instance, if the market misplaced 10% throughout a 12 months, the group of excessive Beta names would have returned -24.3%.
Given this comparatively small outperformance throughout good instances and huge underperformance throughout weak durations, it’s simple to see why we want low Beta shares.
Whereas low Beta shares aren’t fully immune from downturns available in the market, it’s a lot simpler to make the case over the long term for low Beta shares versus excessive Beta given how every group performs throughout bull and bear markets.
How To Calculate Beta
The components to calculate a safety’s Beta is pretty simple. The end result, expressed as a quantity, exhibits the safety’s tendency to maneuver with the benchmark.
Beta of 1.00 implies that the safety in query ought to transfer just about in lockstep with the benchmark (as mentioned briefly within the introduction of this text).
Beta of two.00 means strikes needs to be twice as giant in magnitude.
Lastly, a adverse Beta implies that returns within the safety and benchmark are negatively correlated; these securities have a tendency to maneuver in the other way from the benchmark.
This form of safety can be useful to mitigate broad market weak point in a single’s portfolio as negatively correlated returns would recommend the safety in query would rise whereas the market falls.
For these traders in search of excessive Beta, shares with values in extra of 1.3 can be those to hunt out. These securities would supply traders a minimum of 1.3X the market’s returns for any given interval.
Right here’s a take a look at the components to compute Beta:
The numerator is the covariance of the asset in query whereas the denominator is the variance of the market. These complicated-sounding variables aren’t truly that troublesome to compute.
Right here’s an instance of the info you’ll must calculate Beta:
Threat-free charge (sometimes Treasuries a minimum of two years out)
Your asset’s charge of return over some interval (sometimes one 12 months to 5 years)
Your benchmark’s charge of return over the identical interval because the asset
To indicate learn how to use these variables to do the calculation of Beta, we’ll assume a risk-free charge of two%, our inventory’s charge of return of 14% and the benchmark’s charge of return of 8%.
You begin by subtracting the risk-free charge of return from each the safety in query and the benchmark. On this case, our asset’s charge of return internet of the risk-free charge can be 12% (14% – 2%). The identical calculation for the benchmark would yield 6% (8% – 2%).
These two numbers – 12% and 6%, respectively – are the numerator and denominator for the Beta components. Twelve divided by six yields a worth of two.00, and that’s the Beta for this hypothetical safety.
On common, we’d anticipate an asset with this Beta worth to be 200% as risky because the benchmark.
Occupied with it one other method, this asset needs to be about twice as risky than the benchmark whereas nonetheless having its anticipated returns correlated in the identical path.
That’s, returns can be correlated with the market’s general path, however would return double what the market did in the course of the interval.
This is able to be an instance of a really excessive Beta inventory and would supply a considerably increased danger profile than a median or low Beta inventory.
Beta & The Capital Asset Pricing Mannequin
The Capital Asset Pricing Mannequin, or CAPM, is a standard investing components that makes use of the Beta calculation to account for the time worth of cash in addition to the risk-adjusted returns anticipated for a specific asset.
Beta is an integral part of the CAPM as a result of with out it, riskier securities would seem extra favorable to potential traders as their danger wouldn’t be accounted for within the calculation.
The CAPM components is as follows:
The variables are outlined as:
ERi = Anticipated return of funding
Rf = Threat-free charge
βi = Beta of the funding
ERm = Anticipated return of market
The chance-free charge is similar as within the Beta components, whereas the Beta that you just’ve already calculated is just positioned into the CAPM components.
The anticipated return of the market (or benchmark) is positioned into the parentheses with the market danger premium, which can be from the Beta components. That is the anticipated benchmark’s return minus the risk-free charge.
To proceed our instance, right here is how the CAPM truly works:
ER = 2% + 2.00(8% – 2%)
On this case, our safety has an anticipated return of 14% in opposition to an anticipated benchmark return of 8%.
In concept, this safety ought to vastly outperform the market to the upside however remember that throughout downturns, the safety would endure considerably bigger losses than the benchmark.
If we modified the anticipated return of the market to -8% as a substitute of +8%, the identical equation yields anticipated returns for our hypothetical safety of -18%.
This safety would theoretically obtain stronger returns to the upside however actually a lot bigger losses on the draw back, highlighting the chance of excessive Beta names throughout something however sturdy bull markets.
Whereas the CAPM actually isn’t excellent, it’s comparatively simple to calculate and offers traders a way of comparability between two funding alternate options.
Evaluation On The S&P 500 Inventory With Damaging Beta
Now, we’ll check out the S&P 500 inventory that at present has a adverse beta worth. On the time of publication, there was just one inventory within the S&P 500 Index with a adverse beta worth, in response to a inventory display from FinViz.
Damaging Beta Inventory: Normal Mills (GIS)
Normal Mills is a packaged meals large, with greater than 100 manufacturers and operations in additional than 100 international locations. Normal Mills has not lower its dividend for 125 consecutive years. In line with a Finviz display, GIS inventory has a adverse beta worth of -0.01.
On June thirtieth, 2025, Normal Mills accomplished the sale of its North American yogurt enterprise for $2.1 billion in money. The proceeds shall be used for share repurchases. The sale of this enterprise, which generated 8% of complete gross sales final 12 months, is anticipated to cut back earnings-per-share by ~3% in fiscal 2026.
In late June, Normal Mills reported (6/25/25) outcomes for This autumn-2025. Internet gross sales and natural gross sales fell -3% every over the prior 12 months’s quarter, resulting from decrease volumes and costs. It was the third-worst decline within the final 5 years.
Gross margin shrank from 34.9% to 32.7%, partly resulting from increased enter prices. Adjusted earnings-per-share decreased -27%, from $1.01 to $0.74, however exceeded the analysts’ consensus by $0.03.
Click on right here to obtain our most up-to-date Certain Evaluation report on GIS (preview of web page 1 of three proven beneath)
Closing Ideas
Beta is likely one of the most widely-used measures of inventory market volatility. Beta is usually a beneficial instrument for traders when analyzing shares for inclusion of their portfolios.
Shares with adverse betas are anticipated to maneuver inversely to the broader market. Damaging-beta shares could possibly be significantly interesting in a recession or a market downturn.
In case you are desirous about discovering extra high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases shall be helpful:
The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them usually:
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to help@suredividend.com.
