A case for avoiding high beta stocks - Stocks and ETFs Trading | futures io social day trading
futures io futures trading


A case for avoiding high beta stocks
Updated: Views / Replies:365 / 5
Created: by Big Mike Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

A case for avoiding high beta stocks

  #1 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,353 given, 83,234 received

A case for avoiding high beta stocks

This article:

Avoid High Beta Stocks. Period. - Alpha Architect

Makes a good argument for avoiding high beta stocks.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following user says Thank You to Big Mike for this post:
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Membership Temporarily Revoked
Calgary Alberta/Canada
 
Futures Experience: Advanced
Platform: TDWaterhouse
Favorite Futures: stocks (long term)
 
Posts: 934 since Feb 2014
Thanks: 180 given, 777 received


Personally speaking I think Beta numbers are bogus.

here is an answer I gave many years ago when I was on Yahoo Answers on this subject

https://ca.answers.yahoo.com/question/index;_ylt=AsmkVjcT_EuAEFzUWSqnDt7BFQx.;_ylv=3?qid=20120826055613AAdOQAG

Sorry for some simplistic analogies but the level of expertise on this site was pretty low at times.


Quoting 
My investigation was prompted by a casual observation that the Beta value reported on one website varied a lot compared to the Beta value on another website....How can that be???

Well here are the reasons:

Beta calculations are nothing more than looking at the change in value of a share price (on a percentage basis) compared to the change in value of an index for the same time frame (on a percentage basis).

Then for a fixed period of time you create a scatter graphical plot (think of a target hit by a shotgun blast) and then run a regression analysis to determine the SLOPE of the best straight line through the data (this is the BETA value) and the R-squared value which tells you the goodness-of-fit.

A perfect of the data would have an R-squared value of 1...the lower the r-squared value the more scattered the data (think of a wide spacing between the dots of data as opposed to following the best line)

To Answer YOUR question: the R-squared value is NOT the same as the BETA...R-squared tell you how good that the data fit the best straight line. the Beta is the slope of the line (your formula there is correct.)

Why is the R-squared value important?

Well it is quite easy for two widely different plots of data to have the same best straight line through them...however their R-squared values can be different. You use the R-squared value to compare the QUALITY of the Beta result.

Let us say data set #1 has a beta of 1.3 and an R-squared of .1
another data set #2 has a beta of 1.3 and an R-squared of .6

Are these stocks the same?? NO...they are both more volatile than the index they are being compared to.....however data set #2 has a higher R-squared value so it will MORE RELIABLY follow that index than data set #1 since its values are tighter together.

Now Why are PUBLISHED Beta values unreliable??

1. They DON'T indicate which index they are being compared to. They are ASSUMED to be compared to the S&P500 but you are never sure...and even if they are, is this the appropriate index for comparison.

Shouldn't a Hi-Tech stock use the NASDQ for its beta as there are more Hi-tech stocks in its group...better yet have the comparison made to a sub index which is totally composed of Hi-tech companies...makes more sense to me than having a comparison to a general overall index.

Gold stocks perhaps be compared to the end-of-day price of Gold itself....that seems a more reliable beta number if following that commodity. Why should a gold mine be compared with data that includes drug companies...makes no sense to me.

also you have the problem of comparing Beta's of stocks that list in 2 countries

Take Research in Motion [RIMM: NASD; TSX: RIM]

http://www.theglobeandmail.com/globe-inv...
http://finviz.com/quote.ashx?t=rimm

In Canada the Beta is 2.13 as measured on the Canadian website the Toronto Globe and Mail
In the USA the Beta is 1.69 as measured in the USA using the website FinViz

A significant difference...who is right? probably both...the USA result is based on probably the S&P500 while the Canadian result is based on the TSE composite Index most likely...but you don't know.

Both charts track each other as far as share price goes...so...which beta do you go with??? A big decision there...I would suppose it would depend on the companies you are comparing to...Are they predominately in the USA (probably the case) or in Canada....it is a decision but you have no guidance on the matter...well perhaps now you will think about it more.

2. The websites do not publish WHEN the beta was calculated. A beta based on 5 years of data is hardly comparable to one of 2 years of data or one year...was it calculated say for one year back from today or was that last one year calculation done 6 months ago....you have no way of knowing how these numbers are calculated

3. Websites do not publish the TYPE of DATA used....is it weekly close or daily close...both can be used both and will give you different results for Beta and r-squared numbers

For me using published data is useless for all the reasons listed above. Are Beta and r-squared numbers in theory useless....I have not said that...it is just that the published ones (unless they describe how they are calculated AND are industry/appropriate index specific) are useless.

It is not hard to set up a spread sheet and calculate your own Beta and r-squared values based on an index that is more appropriate than a general S&P 500

It is only when you do that can you make reliable decisions basis on the number you get

This study you quoted is seriously lacking in details.

1. to me one should only use low and high beta stocks that are compared to a single index...They don't state what index was used for this study. The S&P500 did exist at that time along with the Dow Jones Industrial average but they did not have the same shape.

2. They don't state what time frame is used for the calculation of each beta...is it done over the entire period back to 1963?? Not many stocks today existed back then.

3. Can a company be high beta stock in the beginning of its corporate life as it struggles to gain a foothold in the market and then later in its history as it becomes a mature company become a low beta stock... sounds reasonable to me

4. Finally they don't address the r-squared values or "goodness of fit" of the data. How can one compare two companies with the same beta value (slope through the scatter plot) with wildly different r-squared values... one where the data points tightly align around the line and others that are scattered widely

I think their study is flawed without defining their study data

Reply With Quote
The following user says Thank You to Underexposed for this post:
 
  #4 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,353 given, 83,234 received

I personally use a bear/bull beta which I find far more useful. I've talked about in my custom platform thread. But short version, I think it's more useful to know how a stock performs against the benchmark in a particular market cycle.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following user says Thank You to Big Mike for this post:
 
  #5 (permalink)
Membership Temporarily Revoked
Calgary Alberta/Canada
 
Futures Experience: Advanced
Platform: TDWaterhouse
Favorite Futures: stocks (long term)
 
Posts: 934 since Feb 2014
Thanks: 180 given, 777 received


Big Mike View Post
I personally use a bear/bull beta which I find far more useful. I've talked about in my custom platform thread. But short version, I think it's more useful to know how a stock performs against the benchmark in a particular market cycle.

Mike

I agree with this statement of yours: "I think it's more useful to know how a stock performs against the benchmark in a particular market cycle"

But the Beta values are useful when you control how they are calculated. I used to do that at one time when I answered that question I quoted.

But published beta values are fraught with problems since no one tells you how good the data fits the straight best line through it and they don't explain which index they use and the time period for the data...is it 1 year, 2 year, 6 months? you just don't know.

Doing your own calculations is the best...I was interested in that aspect at one time but did not find I gained an edge in any way so I gave up on it.

Reply With Quote
 
  #6 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,353 given, 83,234 received

Yup, I do all my own. 5500+ tickers daily. Multiple benchmarks, multiple windows.

Sent from my LG Optimus G Pro

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote

Reply



futures io > > > > A case for avoiding high beta stocks

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Stocks Could Hit New High With US Data on a Roll Quick Summary News and Current Events 0 March 15th, 2013 02:20 AM
Stocks Have a Bad Case of the 'Fiscal Cliff' Jitters Quick Summary News and Current Events 0 December 27th, 2012 10:00 PM
Why Stocks May Keep Falling: 'The Sugar High Will End' Quick Summary News and Current Events 0 November 7th, 2012 04:50 PM
Investor Sentiment: Another Case of Selling Low and Buying High? Quick Summary News and Current Events 0 November 12th, 2011 09:50 PM
Anyone having any NT Beta 16 Problems that didn't exist in Beta 15? Todd NinjaTrader 17 May 28th, 2010 10:41 AM


All times are GMT -4. The time now is 10:10 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-15 in 0.14 seconds with 19 queries on phoenix via your IP 54.221.76.68