If you can't short the stock because you can't find any to borrow, then as a better alternative do buying some long Put options of the stock...
very volatile, high volume small cap stocks???
- Thread starter cashclay
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Your understanding of Beta should probably come from more than a one paragraph wiki. To simplify, there are two types of movement of a stock, movement because the market as a whole moved or idiosyncratic movement because of something specific to that stock. A stock with a beta of 1 tends to move 1% for every 1% the market moves, in the same direction as the market. A stock with a beta of .5 would move .5% for every 1% the market moves, one with -.5 would move .5% in the opposite direction for every 1% the market moves. So while the absolute value of Beta greater than 1 does indicate a stock that moves more than the market in response to the market, it's a gross oversimplification to think of Beta as simply a volatility measure and one that can certainly lead you astray.
Beta is based on volatility calculation (ie. the stddev of the log-returns), but your description does not represent how vola is calculated...
Ie. the term "in the same direction as the market" is simply wrong, because it can also be in the other direction...
And: it is not about direction, it is about volatility (regardless of direction).
Perhaps you might consider that if the sum of your knowledge about something comes from a wiki, you perhaps ought not argue about it as if you are an expert with individuals who may actually know what they're talking about? I'd recommend Peter Demarzo’s book Corporate Finance which has a good section on CAPM, which is the basis for discussing Beta, but any of the hundreds of finance texts would be fine. You can even take a finance MOOC for free from any number of great schools, again highly recommended so that you can have intelligent discussions with us about the subject. CAPM itself is very interesting and I think you'd find it worth your time to learn.
Beta most assuredly can be negative. A good example of this are gold mining stocks, which tend to move inversely to the market as a whole and indeed often have a negative Beta. You are correct in one thing though, my description does not represent how volatility is calculated, it describes how Beta is calculated. Since Beta is not the same thing as volatility, of course my description does not represent how volatility is calculated.
Indeed funny...
I'll have to research whether Yahoo's Beta means something different than the usual meaning of Beta, or whether there is an err in their calc...
Hmm. it seems you are right, and I apology.
Somehow Beta indeed can be negative...
--> http://aswathdamodaran.blogspot.de/2009/02/can-betas-be-negative-and-other-well.html
Ok, then the consequence of this for finding high volatile stocks would be
to set the Beta critera filter to: less than -1, and greater than +1
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Thank you. The key, and I'm really trying to explain here not be a jerk, is that Beta is not a simple measure of volatility. If it was, then you're right, it couldn't be negative. It is really a part of another concept, the Capital Asset Pricing Model (CAPM), and its really best thought of in conjunction with that entire model. However as a shorthand you can think of it as a combination of correlation and magnitude of correlation with the overall market. More exactly, you calculate it by dividing the stock's sd of returns by the market's sd of returns (that's the magnitude part) and then multiplying that by the correlation of the stocks returns with the market's returns (that's the correlation part). And really, highly recommend the MOOC courses. They're free, you learn a bunch of cool stuff, and did I mention they're free.