Zacks.com featured expert Kevin Matras highlights: Buckle, Hawaiian Electric Industries and Syngenta
March 19, 2008 at 14:24 PM EDT
Kevin Matras looks at how to minimize your portfolio’s market risk and volatility by using the ‘beta’ measure. Stocks in this week’s article are Buckle, Inc. (NYSE: BKE), Hawaiian Electric Industries, Inc. (NYSE: HE) and Syngenta AG (NYSE: SYT). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109
Screen of the Week written by Kevin Matras of Zacks Investment Research:
This week I want to talk about ‘beta’.
As investors try and protect themselves from ‘market risk’ and volatility, a quick look at your stock’s beta could help determine your co-movement measure.
First and foremost, ‘beta’ is a measure of an asset’s risk relative to the ‘market’ (usually the S&P 500). (It’s typically calculated as the ‘performance a stock has experienced in the last five years as the S&P has moved up and down’.) A beta of 1 means the stock’s relative volatility is equal to that of the market. Therefore, a beta that’s greater than 1 is more volatile than the market and a beta of less than 1 is less volatile. (It can also be explained as its excess movement or ‘return’.)
For instance, a beta of 1.5, will have 1 1/2 times the market’s movement (50% more movement than the market). But if the market is plummeting, more than likely you’re dropping even more than the market.
Take the following statistics for example. I ran four tests on the Research Wizard; one for stocks with betas half as much as the market and one with betas 50% more than the market. The results give a great illustration of beta or co-movement (a.k.a. covariance).
Over the last four weeks, the S&P 500’s percentage price change was down by approximately 5.44%. However, by focusing on stocks with betas of less than .5 (half the market’s volatility) the average four-week percentage price change was only down 2.81%, meaning these low beta stocks virtually cut the losses by nearly half as much as the market.
This is in contrast to stocks that had betas of one and a half times the market (50% more market risk/volatility). The average four-week percentage price change on those stocks was down 9.08%. That’s a whopping 67% more downside risk than the market during that time.
(Both tests were applied to stocks with prices greater than or equal to $5 and average daily share volume of greater than or equal to 50,000.)
Of course, beta alone isn’t a magic item, but used in conjunction with other proven stock-picking techniques can help you minimize unnecessary market risk and volatility.
Here’s a screen I’m currently using to scan for good stocks with half the market’s volatility:
Zacks Rank equals 1
Beta less than .5 (half the volatility of the S&P 500)
Price greater than or equal to 5
Avg. 20-day Volume greater than or equal to 50,000
Currently, there are 25 stocks on this list. Here are three that look ready to breakout:
BKE Buckle, Inc.
HE Hawaiian Electric Industries, Inc.
SYT Syngenta AG
Start using the beta indicator in some of your own screens and see if it doesn’t help you smooth out your portfolio’s volatility. Then test it all with our backtesting feature. You can do it.
Sign up now for your free trial to the Research Wizard and pick and choose from some of our proven, profitable strategies. Or put your own ideas to the test and start making better decisions today: http://at.zacks.com/?id=111
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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