A negative beta value indicates that the stock's performance is inversely correlated to the market benchmark, typically the S&P 500. This means that when the market goes up, the stock tends to go down, and vice versa12.
- Inverse Correlation: A beta of -1.0 signifies an exact inverse relationship with the market. For example, if the market rises, the stock price falls, and if the market falls, the stock price rises1.
- Risk Offsetting: Negative betas can be thought of as providing insurance against certain macroeconomic risks that could adversely affect other investments in a portfolio. They can be beneficial in environments where the market is volatile or heading towards a downturn3.
- Expected Return: The expected return on a security with a negative beta is typically less than the risk-free rate. This is because the security's performance is not aligned with market movements, which generally lead to lower returns than a risk-free investment3.
In conclusion, a negative beta suggests that the stock's price tends to move opposite to the market, which can be advantageous in certain market conditions but may also result in lower expected returns compared to a security with a positive beta or one that moves in line with the market.
10/25/2024 04:38pm
