Beta

When I reviewed Home Capital Group recently, my sound bite was "Risky but price is reasonable." There is some concern about the riskiness of this stock and what might happen if the Real Estate Market fell in Ontario. I got a StockTwits back saying its Beta was 1.28 by someone who probably did not even glance at my report. However, I thought this would be a good time to talk about this subject.

The Beta number only tells you a stocks risk against the stock market. It can also only tell you about the stock's past. It has nothing to say about any special risk might be attached to a stock because of what industry it is in or how or where it does business. Beta cannot reflect specific concerns people may have with a company.

To reduce a stock's risk to one figure is, to put it mildly, rather foolish. Yes, it can be like a rule of thumb that works most of the time. It can give you an idea of a stock's risk to decide whether or not to do further investigations on a stock you are interested. However, you can also get blindsided if you define a stock's risk solely by one figure. Risk is a very complex subject.

To learn more about Beta a good place to start is Investopedia. For an explanation of Beta you can refer to the Investopedia site. Another Investopedia article explains the pros and cons of using Beta.

On my other blog I am today writing about Canadian Tire Corp. (TSX-CTC.A, OTC- CDNAF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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