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Stock Beta and Strategy selection

As we enter July, there is quite a bit of uncertainty in the global scene. Talk of trade wars, and other such geopolitical uncertainties have sent the $SPX down by quite a bit. All of this seems to indicate a volatile July in the markets.

Given these conditions, it helps to review how we choose stocks, and then more importantly how we choose individual strategies for such an environment. An important consideration during these times is Beta of a stock. Although the video is older, the principles still apply.

Beta is defined as the correlation of all stocks to the S&P 500 Index (SPX). A calculation is made based on the past 12 or 24 months or any other length of time, and the price movement of a stock is plotted against a $1 movement in the SPX, and a correlation is calculated. Stocks that have a Beta of more than 1 are said to be well-correlated or strongly correlated. Stocks that have a Beta of 0.5 or less are said to be weakly correlated..

The following video explores the concept of Beta, and the video also discusses the general trading environment we can expect to see this summer. And most importantly, what strategies would we choose and what are the considerations for such a market environment..

Your comments are most welcome..

 

 


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