Considering the Beta for each stock, how to explain the systematic risk for these firms.?

Question

I need to explain the systematic risk for these firm. Thank you.

Google Inc. (Beta 1)

"International
Business Machines

Corp" (Beta 0.65)

Apple Inc (0.61)

Wal- Mart Stores Inc (Beta 0.29)

Microsoft Corporation (Beta 0.79)

General Motors Co (Beta 1.67)

Ford Motor Co (Beta 1.31)

Intel Corp (Beta 0.84)

"American International
Group" (Beta 1.66)

Ebay Inc (Beta 0.8)

Answer 1

An important concept for evaluating an asset's exposure to systematic risk is Beta. Since Beta indicates the degree to which an asset's expected return is correlated with broader market outcomes, it is simply an indicator of an asset's vulnerability to systematic risk.



Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.



Since ß = Covariance(Rasset, Rmarket) / Variance(Rmarket), the beta of the market = 1. A beta higher than 1 has higher systematic risk than the market, ß less than one has less systematic risk, and a ß=1 has the same amount of systematic risk as the market.



Keep in mind that systematic risk is "un-diversifiable risk" or "market risk".



Also keep in mind that ß is a component of the Capital Asset Pricing Model (CAPM), where Expected Return = risk free rate "RFR" + ß(Rmarket - RFR), so the lower the systematic risk (as reflected by ß) the lower the Expected Return.

Answer 2

Unlike most of the unschooled on Yahoo thinks, beta is not a measure of volatility and these statements like "If it has a beta of 1.2 it is 20% more volatile than the market" are complete idiocy. Beta is about the level of systematic risk from the market. Volatility is a sum of vol from market factors, other factors, and unsystematic risk. There are no upper limits to volatility based on beta.



Clayman's answer is correct though. For instance Intel has a beta of 0.84 so if the market moves up by 1% you expect Intel to move up by 0.84%. Intel has less systematic risk than the market. Note that Intel by itself is much more volatile than the market because it is a single stock with no diversification.

Answer 3

The lower the beta means the lower systematic risk for that company. Basically a lower beta means that company is less vulnerable to changes in the market, whether it's good or bad.

Answer 4

A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.



Many utilities stocks have a beta of less than 1. Conversely, most high-tech, Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.



http://www.investopedia.com/terms/b/beta.asp



http://www.investopedia.com/articles/stocks/04/113004.asp



http://en.wikipedia.org/wiki/Beta_%28finance%29