FIN 201 Principles of Finance : Measure for Systematic Risk
Questions:
Look at the beta published by Yahoo Finance. Is it different? What can explain the difference?
Answers:
Five year monthly prices of Apple Inc. from Yahoo Finance and from Nasdaq
|
|
Yahoo Finance |
NASDAQ | ||
|
Date |
Adjusted Close |
Return |
Adjusted Close |
Return |
|
6/1/2012 |
83.42857 |
|
2615.72 |
|
|
7/1/2012 |
87.25143 |
4.58% |
2642.53 |
1.02% |
|
8/1/2012 |
95.03429 |
8.92% |
2772.24 |
4.91% |
|
9/1/2012 |
95.3 |
0.28% |
2799.19 |
0.97% |
|
10/1/2012 |
85.04572 |
-10.76% |
2647.92 |
-5.40% |
|
11/1/2012 |
83.61143 |
-1.69% |
2677.88 |
1.13% |
|
12/1/2012 |
76.02428 |
-9.07% |
2660.93 |
-0.63% |
|
1/1/2013 |
65.07 |
-14.41% |
2731.53 |
2.65% |
|
2/1/2013 |
63.05714 |
-3.09% |
2738.58 |
0.26% |
|
3/1/2013 |
63.23714 |
0.29% |
2818.69 |
2.93% |
|
4/1/2013 |
63.25428 |
0.03% |
2887.44 |
2.44% |
|
5/1/2013 |
64.24715 |
1.57% |
2981.76 |
3.27% |
|
6/1/2013 |
56.64714 |
-11.83% |
2909.6 |
-2.42% |
|
7/1/2013 |
64.64714 |
14.12% |
3090.19 |
6.21% |
|
8/1/2013 |
69.60286 |
7.67% |
3073.81 |
-0.53% |
|
9/1/2013 |
68.10714 |
-2.15% |
3218.2 |
4.70% |
|
10/1/2013 |
74.67143 |
9.64% |
3377.73 |
4.96% |
|
11/1/2013 |
79.43857 |
6.38% |
3487.82 |
3.26% |
|
12/1/2013 |
80.14571 |
0.89% |
3592 |
2.99% |
|
1/1/2014 |
71.51428 |
-10.77% |
3521.92 |
-1.95% |
|
2/1/2014 |
75.17714 |
5.12% |
3696.1 |
4.95% |
|
3/1/2014 |
76.67714 |
2.00% |
3595.74 |
-2.72% |
|
4/1/2014 |
84.29857 |
9.94% |
3582.02 |
-0.38% |
|
5/1/2014 |
90.42857 |
7.27% |
3736.82 |
4.32% |
|
6/1/2014 |
92.93 |
2.77% |
3849.48 |
3.01% |
|
7/1/2014 |
95.6 |
2.87% |
3892.5 |
1.12% |
|
8/1/2014 |
102.5 |
7.22% |
4082.56 |
4.88% |
|
9/1/2014 |
100.75 |
-1.71% |
4049.45 |
-0.81% |
|
10/1/2014 |
108 |
7.20% |
4158.21 |
2.69% |
|
11/1/2014 |
118.93 |
10.12% |
4337.79 |
4.32% |
|
12/1/2014 |
110.38 |
-7.19% |
4236.28 |
-2.34% |
|
1/1/2015 |
117.16 |
6.14% |
4148.43 |
-2.07% |
|
2/1/2015 |
128.46 |
9.64% |
4440.67 |
7.04% |
|
3/1/2015 |
124.43 |
-3.14% |
4333.69 |
-2.41% |
|
4/1/2015 |
125.15 |
0.58% |
4414.25 |
1.86% |
|
5/1/2015 |
130.28 |
4.10% |
4508.25 |
2.13% |
|
6/1/2015 |
125.43 |
-3.72% |
4396.76 |
-2.47% |
|
7/1/2015 |
121.3 |
-3.29% |
4588.91 |
4.37% |
|
8/1/2015 |
112.92 |
-6.91% |
4274.58 |
-6.85% |
|
9/1/2015 |
110.3 |
-2.32% |
4181.06 |
-2.19% |
|
10/1/2015 |
119.5 |
8.34% |
4648.83 |
11.19% |
|
11/1/2015 |
118.3 |
-1.00% |
4664.51 |
0.34% |
|
12/1/2015 |
105.26 |
-11.02% |
4593.27 |
-1.53% |
|
1/1/2016 |
97.34 |
-7.52% |
4279.17 |
-6.84% |
|
2/1/2016 |
96.69 |
-0.67% |
4201.12 |
-1.82% |
|
3/1/2016 |
108.99 |
12.72% |
4483.66 |
6.73% |
|
4/1/2016 |
93.74 |
-13.99% |
4341.3 |
-3.18% |
|
5/1/2016 |
99.86 |
6.53% |
4523.89 |
4.21% |
|
6/1/2016 |
95.6 |
-4.27% |
4417.7 |
-2.35% |
|
7/1/2016 |
104.21 |
9.01% |
4730.23 |
7.07% |
|
8/1/2016 |
106.1 |
1.81% |
4771.05 |
0.86% |
|
9/1/2016 |
113.05 |
6.55% |
4875.7 |
2.19% |
|
10/1/2016 |
113.54 |
0.43% |
4801.27 |
-1.53% |
|
11/1/2016 |
110.52 |
-2.66% |
4810.81 |
0.20% |
|
12/1/2016 |
115.82 |
4.80% |
4863.62 |
1.10% |
|
1/1/2017 |
121.35 |
4.77% |
5116.77 |
5.20% |
|
2/1/2017 |
136.99 |
12.89% |
5330.31 |
4.17% |
|
3/1/2017 |
143.66 |
4.87% |
5436.23 |
1.99% |
|
4/1/2017 |
143.65 |
-0.01% |
5583.53 |
2.71% |
|
5/1/2017 |
153.95 |
7.17% |
5674.22 |
1.62% |
Trend line for beta
Beta as per the formula = 1.34
Beta as per the trend line = 1.34
Interpretation of Beta
Beta is the measure for systematic risk or volatility of a portfolio or a security in comparison with the market. Beta is calculated through the regression analysis. Beta states the propensity of the return for security to respond the fluctuation in the market. The beta of a security is calculated through dividing the covariance of the security's returns and benchmark's returns by the variance of the benchmark's returns for a particular period. A beta equal to 1 indicates that security prices are moving with the market. Beta < 1 represents that the security price is less volatile as compared to the market and beta > 1 represents that security price is more volatile as compared to the market. Therefore, in the above calculated circumstances, beta of 1.34 represents that the beta is 34% more volatile as compared to the market (Bodie, 2013).
Importance of numerical results
Numerical data are crucial to take the decisions regarding the investment and depending on the financial data published in various sites like Yahoo finance and Nasdaq the investors can take important decisions regarding their investment. The financial data providers sites keep an eye on the financial movement of the companies and give the broad details of the share price of the company, changes in the share price, movement in the share price, risk involved in the shares, beta of the company’s share and market price of the share. The investors can get ready data from these sites and moreover, can analyse the data for evaluating their performance and sustainability. Moreover, from the historical data the investor will be able to analyse the past performance trend of the company (Damodaran, 2016).
Difference in the Beta price
Beta as per the formula = 1.34
Beta as per the trend line = 1.34
Beta as per Yahoo Finance = 1.44
As per the Yahoo finance, the Beta is 1.44 and as per the formula and the trend line the Beta is 1.34. There is difference in Beta as the Beta under formula and trend line are calculated taken into consideration the monthly data whereas, the yahoo finance Beta are calculated by taking into consideration the daily data. Apart from this, there is difference in date. The yahoo finance beta are represented as on 5/12/2017, whereas, under the trend line date is considered till 5/9/2017. In addition, in the Yahoo Finance they have calculated the Beta taking into consideration the unadjusted data whereas, in the trend line the adjusted data has been taken into consideration. Owing to these reasons, there is difference in the Beta (Kevin, 2015).
References
Bodie, Z. (2013). Investments. McGraw-Hill.
Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
Kevin, S. (2015). Security analysis and portfolio management. PHI Learning Pvt. Ltd..
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