While beta is a good approximation of risk, it must be taken into consideration with other measures like standard deviation, or volatility. The other important matter is that risk, no matter how it’s measured, is always changing. As seen in Exhibit 3, a company with a lower than market beta (below 1), is shown in 2016. The beta sensitivity to market changes is illustrated by the red trendline. The flatter the trend line, the lower beta. Conversely, the steeper the trendline, the higher the beta. However, when looking at the trendline from 2016 vs. that as of August 2020, one could see that the beta almost doubled, to 1.46, which greatly steepened the trendline. The result of this evolution was that the once low beta company with limited sensitivity was now moving with greater sensitivity than the broader market.
Why Dividend Growth?
October 13, 2020
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