What is low beta in stocks? ‘Low beta’ is a term used commonly at the stock exchange. If you’re unfamiliar with it, it’s important to know what it means because it is used relative to ‘low beta stocks’ and such stocks usually have higher benefits to offer. ‘Low beta in stocks’ is a term used to define stocks that holds a beta value less than 1. Further information about such stocks is given below.
What Is Considered a Low Beta Stock?
First, you have to understand what a ‘beta value’ is. A ‘beta value’ is a coefficient measure of how a single asset moves, on an average basis, with an overall increase and decrease in an asset’s price in the market.
Through the beta value, we can assess the ‘contribution of a single asset towards the risk of the market portfolio, when an asset is added in a small quantity.’
Now that we understand what beta value is, let’s move on. ‘Low beta in stocks’ is a term that comes to mind when there is volatility in the market. In financial markets, volatility is very common.
In fact, most decisions are based on the true volatility of the markets. Some people avoid volatile markets. Whereas others go for trading in such markets to earn higher profits off of smaller investments and for higher returns.
Low beta stocks have many benefits to offer in volatile markets. In history, these stocks have outperformed the markets. In financial markets, the beta value is usually around 1, 0, and 2.
If a stock is moving less than the market, its beta is less than 1. Such stocks have a low beta. High beta stocks, on the other hand, are riskier and have high potential. Such stocks have a beta value of more than 0 and usually 2.
Stocks that stay on medium ground are those that have a beta value of 0. Such stocks usually balance the portfolio and do not have lower or higher risks associated with them.
It’s important to understand the little things that make stocks tick. Unless you trade options, you’re probably not thinking about anything but buying and selling.
However, understanding the minutia of stocks can be a difference-maker in your profitability.
Less Risk and Lower Returns
Essentially then, the beta is a concept that measures ‘the total expected move in a stock as compared to the total movements in the financial market’.
Good examples of these stocks are ‘retail stocks’ and stocks of ‘utility companies’.
Low beta stocks are a popular choice when the markets are down. They usually do match the markets and are not widely popular when the markets are across a certain point.
Beta is a good measure of a stock’s volatility as compared to the total market. The most common thing about these stocks is that they ‘underperform the broader markets in uptrends’.
Furthermore, ‘they outperform in downtrends’, which gives investors ‘lower possible returns ahead of lower risk’.
Another thing to note here is that stocks with low betas usually outperform the market. They have less volatility against the benchmark. If we look at what has gone down in the stock market last year, then 2020 was a good year for low beta stocks.
According to statistics, 29 stocks with a beta lower than 1 increased among 100 and 800 percent in the last year. These include Adani Green, Tanla Platforms, and Navin Flourine.
Other low beta stocks that were popular in 2021 were H&R Block, Inc. (HRB), Extra Space Storage (EXR), Avalon Bay Communities, Inc. (AVB), Mid- America Apartments (MAA), UDR Inc. (UDR), and Iron Mountain Incorporated.
They also pay dividends and are a good idea amongst investors. In fact, Quest Diagnostics (DGX), ViacomCBS (VIAC), J.M. Smucker (SJM), General Mills (GIS), FirstEnergy (FE), Verizon Communications (VZ), and Costco (COST) are excellent ideas to consider. However, do your own due diligence with these stocks. You want to make sure you’re getting a good buy. Buy at support and not at resistance.
Other low beta stocks that made it to the top of the 2022 list include:
Nationwide Risk-Managed Income ETF JUS1- Beta 0.33, Invesco S&P 500 Downside Hedged ETF PHDG- Beta 0.33, WBI BullBear Value 3000 ETF WB1F- Beta 0.55, Invesco S&P 500 Low Volatility ETF SPLV- Beta 0.69, FT Cboe Vest Fund Of Buffer ETFs BUFR- Beta 0.56, Global X Nasdaq 100 Covered Call ETF QYLD – Beta 0.66.
Furthermore, other stocks to consider are Sturm, Ruger & Company, Inc. (RGR), Owens & Minor, Inc. OMI, Rocky Brands, Inc. RCKY, Lennar, Regency Centers, Penumbra, Inc. PEN, and Natus Medical Incorporated NTUS.
Is Low Beta Good in Stocks?
Low beta stocks have many benefits to offer today. You should go for them because they’re able to pay very high dividends.
You can find them in high variety today and they pay quite well so investing in them is always a good idea. Dividends are a great bonus when trading.
In fact, they’re an ideal choice in choppy markets. Hello, 2022! There are so many uncertainties in the market. Therefore, creating a portfolio that has low beta stocks will help in balancing your portfolio.
Those plus securities deliver healthy returns and they are always a good choice in tricky markets.
Low beta stocks are also stocks that provide high returns in low valuation times. Such stocks are always more worthy and can help you secure an income when markets are volatile.
Combined with high volatility and mid-volatility stocks, an overall picture of such a portfolio will help you reap big profits, especially when competition is fierce.
In general, they carry the lowest amount of risk. As a result, they’re beneficial. However, there is a price to pay with such stocks because they can be risky if not matched with the right assets and portfolio.
Low beta stocks are very popular today. In fact, many of these top stocks today such as EIG employers, OBAS Optibase, and ACI Albertsons Companies are less risky, less volatile, and stand excellently in tough markets. They’re associated with low-risk businesses. They offer consistent earnings and higher stability in diversified portfolios. That is why it’s an excellent idea to add them to your portfolios.