S&P 500   3,632.83 (+1.54%)
DOW   30,067.14 (+1.61%)
QQQ   293.33 (+1.01%)
AAPL   114.66 (+0.71%)
MSFT   213.52 (+1.62%)
FB   274.09 (+2.11%)
GOOGL   1,752.88 (+1.47%)
AMZN   3,118.22 (+0.64%)
TSLA   546.82 (+4.78%)
NVDA   519.02 (-1.25%)
BABA   276.98 (+2.54%)
CGC   26.82 (+8.50%)
GE   10.59 (+5.16%)
MU   63.17 (-1.57%)
AMD   84.68 (-0.74%)
T   29.26 (+2.24%)
NIO   53.20 (-3.94%)
F   9.43 (+6.43%)
ACB   9.14 (+27.30%)
NFLX   480.99 (+0.92%)
GILD   60.79 (+1.50%)
BA   221.08 (+4.51%)
DIS   151.45 (+3.75%)
S&P 500   3,632.83 (+1.54%)
DOW   30,067.14 (+1.61%)
QQQ   293.33 (+1.01%)
AAPL   114.66 (+0.71%)
MSFT   213.52 (+1.62%)
FB   274.09 (+2.11%)
GOOGL   1,752.88 (+1.47%)
AMZN   3,118.22 (+0.64%)
TSLA   546.82 (+4.78%)
NVDA   519.02 (-1.25%)
BABA   276.98 (+2.54%)
CGC   26.82 (+8.50%)
GE   10.59 (+5.16%)
MU   63.17 (-1.57%)
AMD   84.68 (-0.74%)
T   29.26 (+2.24%)
NIO   53.20 (-3.94%)
F   9.43 (+6.43%)
ACB   9.14 (+27.30%)
NFLX   480.99 (+0.92%)
GILD   60.79 (+1.50%)
BA   221.08 (+4.51%)
DIS   151.45 (+3.75%)
S&P 500   3,632.83 (+1.54%)
DOW   30,067.14 (+1.61%)
QQQ   293.33 (+1.01%)
AAPL   114.66 (+0.71%)
MSFT   213.52 (+1.62%)
FB   274.09 (+2.11%)
GOOGL   1,752.88 (+1.47%)
AMZN   3,118.22 (+0.64%)
TSLA   546.82 (+4.78%)
NVDA   519.02 (-1.25%)
BABA   276.98 (+2.54%)
CGC   26.82 (+8.50%)
GE   10.59 (+5.16%)
MU   63.17 (-1.57%)
AMD   84.68 (-0.74%)
T   29.26 (+2.24%)
NIO   53.20 (-3.94%)
F   9.43 (+6.43%)
ACB   9.14 (+27.30%)
NFLX   480.99 (+0.92%)
GILD   60.79 (+1.50%)
BA   221.08 (+4.51%)
DIS   151.45 (+3.75%)
S&P 500   3,632.83 (+1.54%)
DOW   30,067.14 (+1.61%)
QQQ   293.33 (+1.01%)
AAPL   114.66 (+0.71%)
MSFT   213.52 (+1.62%)
FB   274.09 (+2.11%)
GOOGL   1,752.88 (+1.47%)
AMZN   3,118.22 (+0.64%)
TSLA   546.82 (+4.78%)
NVDA   519.02 (-1.25%)
BABA   276.98 (+2.54%)
CGC   26.82 (+8.50%)
GE   10.59 (+5.16%)
MU   63.17 (-1.57%)
AMD   84.68 (-0.74%)
T   29.26 (+2.24%)
NIO   53.20 (-3.94%)
F   9.43 (+6.43%)
ACB   9.14 (+27.30%)
NFLX   480.99 (+0.92%)
GILD   60.79 (+1.50%)
BA   221.08 (+4.51%)
DIS   151.45 (+3.75%)
Log in

High Beta Stocks

Beta is the result of a calculation that measures the relative volatility of a stock in correlation to a particular standard. For U.S. stocks that standard is usually, but not always, the S&P 500. Beta is a form of regression analysis and it can be useful for investors regardless of their risk tolerance. Beta is considered one of the few data points that can be beneficial for practitioners of fundamental analysis and technical analysis. This page lists stocks that have unusually high beta calculations. For example, a beta of 2.0 means a stock moves twice as much as the S&P 500. More about high beta stocks.

Market Cap:
CompanyBetaPE RatioMarket CapCurrent PricePrice ChangeVolumeAverage VolumeIndicator(s)
Rattler Midstream logo
Rattler Midstream
4.5510.42$1.30 billion$8.96+4.8%3,362531,861
4.1430.95$10.03 billion$20.12+1.7%1,970226,294Upcoming Earnings
ASOS logo
4.0137.28$6.03 billion$60.40-0.1%5096,962
Samsung Electronics
3.8916.49$5.71 billion$44.20flat0100
Western Midstream Partners logo
Western Midstream Partners
3.7715.99$5.82 billion$14.71+5.2%30,8112.79 millionDecrease in Short Interest
Camping World logo
Camping World
3.7316.81$2.77 billion$31.43+0.8%58,4402.15 millionDividend Increase
Increase in Short Interest
Noble Midstream Partners logo
Noble Midstream Partners
3.595.88$845.68 million$9.93+6.1%24,241680,444
Helix Energy Solutions Group logo
Helix Energy Solutions Group
3.5525.56$566.11 million$4.09+8.5%184,3583.15 millionIncrease in Short Interest
eXp World logo
eXp World
3.52580.29$3.54 billion$52.22+3.3%20,119583,503
Sasol logo
3.4610.55$4.87 billion$8.65+11.0%66,7052.47 million
Premier Foods logo
Premier Foods
3.4114.35$940.63 million$5.60-4.2%6312,728
BRP logo
3.3642.33$4.57 billion$52.91+1.1%5,370119,147Upcoming Earnings
Analyst Downgrade
Increase in Short Interest
3.3532.43$618.60 million$6.81+11.1%73,7531.90 million
Herc logo
3.2625.51$1.76 billion$63.52+5.3%5,649242,170
Talos Energy logo
Talos Energy
3.225.34$655.81 million$10.20+13.6%11,033598,858
The Michaels Companies logo
The Michaels Companies
3.2110.41$1.42 billion$9.89+3.0%90,0684.91 million
SBI logo
3.1718.97$5.95 billion$25.80+1.9%8021,215Upcoming Earnings
Boot Barn logo
Boot Barn
3.1134.87$1.22 billion$42.89+1.8%6,618981,520
Delek Logistics Partners logo
Delek Logistics Partners
3.098.07$890.81 million$30.01+1.2%200139,598
Tronox logo
2.95128.51$1.78 billion$12.85+3.9%28,1971.46 million
WW International logo
WW International
2.8825.64$2.01 billion$31.02+4.9%44,7521.62 million
Revolve Group
2.8242.84$1.45 billion$21.85+5.8%33,4841.29 million
2.8080.31$5.37 billion$62.64+1.6%24,5541.87 million
2.7416.47$4.11 billion$8.90flat62,218Upcoming Earnings
Analyst Upgrade
Skyline Champion
2.7434.48$1.86 billion$32.07-2.6%11,861539,896
Brinker International logo
Brinker International
2.7493.18$2.24 billion$53.11+7.3%28,3142.42 millionDecrease in Short Interest
Builders FirstSource logo
Builders FirstSource
2.7320.32$4.30 billion$36.99+0.6%44,9801.82 million
2.7044.57$2.50 billion$24.96+0.6%10,113755,231
Square logo
2.68325.98$92.16 billion$202.11-2.7%296,12312.50 million
Big Lots logo
Big Lots
2.632.84$2.01 billion$51.59+0.9%30,4081.73 million
Norbord logo
2.60318.78$3.01 billion$38.25+2.6%12,153295,783Analyst Report
2.59136.00$1.27 billion$6.80+1.0%2,246132,693
Lumber Liquidators logo
Lumber Liquidators
2.5919.00$857.59 million$30.59+3.0%30,4351.29 millionAnalyst Upgrade
G-III Apparel Group logo
G-III Apparel Group
2.5217.55$1.11 billion$23.87+4.4%14,5911.17 millionAnalyst Report
Heavy News Reporting
2.5221.97$868.12 million$23.29+2.2%4,349212,353Increase in Short Interest
2.5224.18$4.38 billion$35.30flat00Upcoming Earnings
Analyst Revision
Heavy News Reporting
RH logo
2.4852.54$8.60 billion$439.77-0.2%10,1011.01 millionAnalyst Report
Lands' End logo
Lands' End
2.4760.48$733.59 million$22.98+2.1%4,090289,769
Harsco logo
2.4577.71$1.41 billion$18.65+4.5%12,314789,918Analyst Downgrade
Analyst Revision
Forterra logo
2.4536.27$1.12 billion$17.41+1.8%9,066506,745
Celestica logo
2.4429.56$962.76 million$7.98+7.0%26,224494,113
The Trade Desk logo
The Trade Desk
2.44343.81$39.43 billion$852.65+1.5%22,0331.67 millionAnalyst Report
Insider Selling
Decrease in Short Interest
Thor Industries logo
Thor Industries
2.4323.69$5.38 billion$94.99-2.3%25,272985,520
American Woodmark logo
American Woodmark
2.4324.89$1.78 billion$94.59-9.7%4,986138,150Analyst Downgrade
Heavy News Reporting
Mitsubishi Heavy Industries
2.4210.60$8.51 billion$25.24-0.2%1621,247
Alliance Data Systems logo
Alliance Data Systems
2.4110.60$3.39 billion$73.85+4.0%30,4431.42 millionIncrease in Short Interest
Meritor logo
2.407.57$1.92 billion$27.93+5.4%18,1721.01 millionInsider Selling
H&E Equipment Services logo
H&E Equipment Services
2.39289.60$1.04 billion$28.96+0.3%6,728337,881Increase in Short Interest
Patrick Industries logo
Patrick Industries
2.3924.79$1.54 billion$67.44+2.4%5,282224,770Dividend Increase
Analyst Upgrade
Heavy News Reporting
Cactus logo
2.3520.38$1.86 billion$26.50+7.4%16,547465,618Decrease in Short Interest
OneMain logo
2.358.70$5.20 billion$40.26+4.0%35,4811.04 million
Ladder Capital logo
Ladder Capital
2.3429.27$1.09 billion$9.66+6.2%30,6161.64 millionDecrease in Short Interest
XPO Logistics logo
XPO Logistics
2.33128.34$9.20 billion$105.24+4.5%35,8181.36 million
Advanced Micro Devices logo
Advanced Micro Devices
2.33114.43$102.60 billion$84.68-0.7%1.13 million64.11 millionAnalyst Report
United Rentals logo
United Rentals
2.3216.08$16.33 billion$238.40+5.3%40,3461.29 millionDecrease in Short Interest
Alpha and Omega Semiconductor logo
Alpha and Omega Semiconductor
2.29405.67$638.45 million$24.34-2.8%11,834139,985Analyst Report
Heavy News Reporting
2.291,682.84$1.54 billion$33.64+6.8%108,8832.62 millionEarnings Announcement
Analyst Downgrade
Insider Selling
MGM Resorts International logo
MGM Resorts International
2.289.99$12.92 billion$27.96+6.9%390,15420.07 millionDecrease in Short Interest
William Hill logo
William Hill
2.2826.28$3.72 billion$14.19-0.1%73,906250,909
2.28116.05$20.16 billion$71.95-1.0%54,7453.09 millionUnusual Options Activity
CrossAmerica Partners logo
CrossAmerica Partners
2.276.28$650.57 million$17.71+3.1%56159,123Increase in Short Interest
ASGN logo
2.2723.77$4.33 billion$82.49+0.8%31,736334,997Analyst Report
Insider Selling
Endurance International Group logo
Endurance International Group
2.2672.47$1.33 billion$9.42+0.1%28,320937,323
Forestar Group logo
Forestar Group
2.2616.10$949.19 million$20.29+2.7%955123,118
Ichor logo
2.2625.87$719.41 million$32.34+4.1%7,045339,398
Oasis Petroleum logo
Oasis Petroleum
2.25123.46$10.21 billion$32.10+0.9%3,95030.77 millionHeavy News Reporting
Boise Cascade logo
Boise Cascade
2.2510.63$1.71 billion$43.99+0.8%4,770322,041
M/I Homes logo
M/I Homes
2.256.51$1.31 billion$45.14-1.2%7,414326,027Increase in Short Interest
Aptiv logo
2.2418.19$31.48 billion$121.14+3.9%36,7612.08 million
Griffon logo
2.2318.73$1.19 billion$21.16flat6,269332,151Decrease in Short Interest
Cairn Energy logo
Cairn Energy
2.2318.04$1.22 billion$4.15+3.8%120,87028,169High Trading Volume
Ingevity logo
2.2316.74$2.92 billion$72.13+1.8%10,916424,906
Group 1 Automotive logo
Group 1 Automotive
2.2310.55$2.29 billion$133.34+6.9%4,462282,090Dividend Announcement
Gerdau logo
2.227.94$6.96 billion$4.21+4.0%385,4169.04 million
SunPower logo
2.221,136.57$3.73 billion$22.72+3.6%111,2555.48 million
Federal National Mortgage Association
2.20124.81$2.89 billion$2.50+6.2%27.24 million4.44 million
SVB Financial Group logo
SVB Financial Group
2.2020.93$18.07 billion$359.63+3.1%5,565466,537
The Weir Group logo
The Weir Group
2.2020.75$5.64 billion$11.62+2.1%3,79026,250
Digital Turbine logo
Digital Turbine
2.20128.77$3.68 billion$38.63-6.8%118,0363.22 millionDecrease in Short Interest
Aphria logo
2.1975.78$1.84 billion$6.82+7.2%442,6206.85 million
SailPoint Technologies logo
SailPoint Technologies
2.171,035.76$3.87 billion$41.42-2.7%29,9671.42 million
Sleep Number logo
Sleep Number
2.1619.57$1.90 billion$68.87+0.5%10,909539,556
Lincoln National logo
Lincoln National
2.1613.18$9.00 billion$50.35+8.1%129,5032.33 million
Franchise Group
2.1548.14$1.07 billion$26.72-0.3%1,619135,718
Koppers logo
2.154.94$580.55 million$28.70+4.1%3,737199,117
Texas Capital Bancshares logo
Texas Capital Bancshares
2.1428.57$2.80 billion$57.42+3.4%8,465694,499
e.l.f. Beauty logo
e.l.f. Beauty
2.13117.37$1.13 billion$22.30+1.1%9,356863,098
Winnebago Industries logo
Winnebago Industries
2.1333.24$1.79 billion$52.85-0.5%21,824776,366
Valeo logo
2.1218.09$9.07 billion$18.81+2.5%14,06555,045Analyst Report
Hilton Grand Vacations logo
Hilton Grand Vacations
2.12103.57$2.42 billion$29.00+2.2%20,067941,996
Ebix logo
2.1111.93$1.05 billion$36.75+8.3%12,232415,582Dividend Announcement
2.1134.69$1.38 billion$43.01-0.2%9,2631.00 millionAnalyst Downgrade
Increase in Short Interest
WESCO International logo
WESCO International
2.0924.31$3.22 billion$67.09+4.3%11,3751.02 million
Kandi Technologies Group logo
Kandi Technologies Group
2.09104.93$808.07 million$14.69-1.6%830,0183.99 million
Micro Focus International logo
Micro Focus International
2.082.49$1.49 billion$4.89+10.1%130,6381.27 millionAnalyst Upgrade
Increase in Short Interest
North American Palladium
2.088.03$881.42 million$14.98+0.3%21,60024,024
Tempur Sealy International logo
Tempur Sealy International
2.086.83$5.29 billion$25.28-1.4%42,706965,301Increase in Short Interest
WillScot Mobile Mini logo
WillScot Mobile Mini
2.07137.76$4.99 billion$22.04+0.7%22,9391.45 million
ACCO Brands logo
ACCO Brands
2.0710.59$745.58 million$8.26+4.7%18,618647,891
Impala Platinum logo
Impala Platinum
2.068.45$8.30 billion$10.39-4.6%55,608120,063Heavy News Reporting
CSV / Excel Export To export this table to CSV or Excel, upgrade to MarketBeat All Access.

Using High Beta Stocks to Maximize Your Investing Profits

What Does Beta Mean in Stock Selection?

fluctuating stock prices We often hear the word beta in the context of “beta test”. It’s a way of testing something (e.g. a software program) in a real-world situation to iron out any glitches before rolling it out to the public.

The word beta in the context of investment strategy means something different—or does it? 

Understanding beta can help investors understand why a company may be performing or underperforming, in addition to giving a measure of its risk, relative to Wall Street. In this way, beta can help investors predict how a stock is likely to perform before they buy the stock.

Beta is the result of a calculation that measures the relative volatility of a stock in correlation to a particular standard. For U.S. stocks, that standard is usually (but not always) the S&P 500. Beta can also be used by investors to evaluate a particular stock’s expected rate of return, particularly when using the Capital Asset Pricing Model (CAPM).

Beta is a form of regression analysis, and it can be useful for investors regardless of their risk tolerance. Beta is considered one of the few data points that can be beneficial for practitioners of fundamental analysis and technical analysis. Investors who tend to analyze stocks using fundamental analysis will use beta along with the price-to-earnings ratio, shareholders equity, debt-to-equity ratio, and other factors. Technical analysts will use beta as an indicator of stocks that offer the price movement they are seeking. They will use beta along with other indicators, such as average daily trading volume (ADTV) and a stock’s moving average.

What are the key terms related to beta?

Although investors will typically not have to calculate beta for themselves, it’s helpful to understand the meaning of two variables that are used in the formula for beta. These variables are covariance and variance.

  • Covariance is a measurement of how two stocks move together. If the number is positive, it means the price movement is generally correlated (i.e. when one stock goes up, so does the other and vice versa). If the number is negative, it means the price movement is generally not correlated (i.e. when one stock goes up, the other goes down and vice versa).

  • Variance measures how far a stock moves in relation to its mean. In the case of beta, the mean is the benchmark being used.

Beta is found by dividing covariance by variance. 

Covariance helps measure how closely individual stocks move relative to the overall market or index. If the direction of their momentum, the beta will be positive. If their momentum is oppositional, the beta will be negative.

Variance is a measure of the momentum of the stock market, relative to its mean. 

A financial advisor—or any investor, really—can leverage the beta calculation to measure individual stocks in terms of risk, relative to the stock market, or even a more specific index or fund, such as the securities in exchange-traded funds or a portfolio of stocks. 

An investment advisor (or formula-savvy retail investor) can then leverage the beta calculation again to build a capital asset pricing model. This more complex formula provides mathematically-backed investment advice about the risk of individual stocks relative to their expected rate of return. Investors can then build an investment strategy to reduce risk and acquire an asset that will outperform the market—minimizing losses and increasing gains. This, of course, is the universal strategy for finance across the board, whether you’re a registered investment advisor or a retail investor. 

Individual investors who are active traders will also want to make sure they do their own beta calculation to assess risk and build a CAPM to assess potential gains. Though it’s not the only stat they need to formulate a strategy, it’s as important as any of the other ones, such as market capitalization and price. 

In many cases, a financial website will give what’s known as the “provided beta” for a particular stock. For active traders, financial software programs will also provide the beta value. When using a provided beta, investors should pay attention to two variables.

First, it’s important to understand what benchmark is being used to determine beta. Since the beta shows a correlation between a particular security and something, an investor needs to know what that something is. As pointed out above, for U.S. stocks it is common for beta to be expressed as a correlation to a stock index, usually the S&P 500, but not always. In some cases, the Dow Jones Industrial Average (DJIA) may be used, or even the NASDAQ.

The second thing an investor will need to know about a stock’s beta is the time frame that is being measured. If you’re a long-term investor, you may want to know the beta over several years. If you’re an active trader, you’ll probably be more interested in the beta over a much more recent timeframe.

A personally calculated beta, on the other hand, is one that investors will calculate for themselves. To calculate beta, investors will have to know the covariance between the return of the stock being analyzed and the return of the benchmark for that stock as well as the variance of the market returns.

As we mentioned above, many financial software programs will do the calculation for you. It is also possible to use an Excel spreadsheet to calculate beta. For many investors, particularly those who are engaging in day trading, a personally calculated beta may be more accurate for their needs.

Beta can get confusing if an investor gets hung up on positive and negative. When an investor sees a negative number, they instinctively think a stock is falling (i.e. generating a negative return). That is not necessarily the case with a negative beta. Here’s why:

Beta is a correlation between the price movement of a security and a benchmark related to that security. For these examples, let’s assume an investor is buying a U.S. stock that is being benchmarked to the S&P 500.

The beta of the S&P 500 is 1. The simplest explanation for this is that in establishing a benchmark, you’re dividing one thing by itself and that will always equal 1. Therefore, knowing the beta of the S&P 500 is 1, investors can interpret the beta of a particular stock in the following ways:

Beta of 1: This means a stock is highly correlated to the S&P 500. This means that if the S&P 500 index is up for the day, the stock is more than likely going to be up for the day and vice versa. A beta of 1 also means that price movement will probably be very similar. In other words, if you were to overlay the stock’s price movement over the S&P 500, the two lines would look very similar.

Beta of less than 1: This means a stock is not very correlated with the market. Sometimes it will follow the trend in the market, but sometimes it won’t. In terms of price movement, a beta of less than 1 indicates that the stock is less volatile (i.e. less reactive to price movements in the broader market).

Beta of more than 1: This also means a stock is not very correlated to the market. However, unlike a beta of less than 1, this means a stock is more volatile (i.e. more reactive to price movements in the broader market).

Beta of less than 0 (i.e. a negative beta): This means a stock is inversely correlated to the market. The tendency of the stock is to move in the opposite direction as the market. The higher the negative number, the more volatile the stock.

As you can see, beta is all about its relationship to the number 1. The closer the number is to 1, the more it is correlated to the market, the further it is from 1, the less it is correlated. 

It’s important to understand that beta is a multiplicative factor. A beta of 1.3 means that a stock is 30% more volatile than the market. First and foremost, beta is about projecting risk, not return.

Let’s go through some examples.

  • Microsoft has a beta of around 1.25. This means an investor can reasonably expect that this stock is 25% more volatile than the market. This would be somewhat expected of a stock like Microsoft in the technology sector.
  • Walt Disney Company has a beta right around 1.03. This puts its volatility right in line with the broader market. This is what you might expect from a blue-chip stock.
  • In contrast, Duke Energy has a beta of around 0.27. This means it is not a very volatile stock, which is what investors would expect from a utility stock. This doesn’t mean that the stock is underperforming.

A beta can also be much higher than 1. There are some stocks that have a beta of 2 or more.

One of the most important things to keep in mind is that beta is not an indication of price performance, but rather of potential volatility. A positive beta does not mean that a stock is going up in price. In fact, a stock that has a positive beta while the market is falling is more than likely falling at a higher percentage rate than the market. 

Likewise, a negative beta does not mean that a stock is going down in price. When the market is trending lower, these stocks will tend to be rising. A negative beta also does not mean that a company is underperforming. It simply could be in a sector that naturally works in opposition to the broader market. Stocks of gold mining companies and gold ETFs are good examples. You should expect these stocks to have a negative beta compared to the market because gold (and many other precious metals) tend to rise when the market falls and vice versa.

How to Use Beta for Diversification

How can knowing the beta help investors create a more diversified portfolio? For starters, diversification is not just about investing in different asset classes. It's about investing in different types of assets within those classes. This is where beta can be a very useful measurement.

Many investors think they are diversified when they’re actually not. For example, you can look at two blue-chip stocks. In our example above, we showed the Walt Disney Company with a beta of 1.03. Another blue-chip stock, The Coca-Cola Company has a beta of 0.60. So, you can have quite a difference in volatility between two stocks that, based on market cap and other factors, look to be equal.

Using our example above, if an investor was looking for growth, they will want to look at stocks that have a beta above 1 (like Microsoft, for example). This gives them a greater chance of a higher return for a higher risk of the stock losing value when the market goes down. However, they can hedge this volatility by adding a variety of stocks that are closer to 1, depending on their risk tolerance. Investors who are more active traders may also wish to look at stocks with negative betas if they predict the market will go down.

As we mentioned above, it’s important to understand what beta is using a benchmark and the timeline that is being measured. If an investor is looking at a mining stock or ETF for example, knowing that it has a negative beta, while helpful, may be somewhat obvious. They may need more information to perform greater fundamental or technical analysis to better assess whether a stock belongs in their portfolio. One way to do this may be to calculate its beta as compared to a precious metals index.

Also, beta does not take into account recent news events that may impact a stock. There are some programs that will calculate a time-varying beta estimate which attempts to take into account factors that affect the characteristics of a company that may affect the way its beta is calculated. However, in general, it would take a significant change over a significant period of time to change a beta in a meaningful way. That's why day traders and other short-term investors look at other technical cues to decide on whether to invest in a stock.

High beta stocks do carry some risks. Stocks with high betas are more volatile in comparison to the overall market or index. Beta actually says nothing about the direction of a stock’s momentum in price, or the relative strength of the company. 

If a stock price is ballooning beyond the pace of the market, the company may be overvalued. Eventually, that bubble will pop, leaving investors with great losses. Smart investors and traders do not ride waves of hype. Conversely, a high beta may indicate that a company’s stock price is plummeting due to some current events that might have a longstanding negative impact, such as downsizing or bankruptcy. 

High beta stocks may indicate a history of frequent movement in opposition to the overall stock market. These types of stocks are generally volatile and can throw off investors who do not have experience riding market waves—that is, knowing when to buy and sell. If an investor is involved with active trading and prefers to minimize their risk, they can also balance out their trading with some low beta stocks. These less-volatile securities can stabilize their portfolio of stocks by compensating for some of the losses incurred by high beta stocks that deviate from an expected return. 

A smart beta strategy can be used to minimize the risk impact of high beta stocks. This type of strategy might combine something passive and more stable, like a dividend investing strategy, with active trading in order to minimize losses from the most volatile stocks in the fund. 

Investors working with high beta stocks are hoping to cash out on the stock price waves, buying low and selling high. They may have scoured lists of cheap stocks to buy or stock market gainers in their search for potential profits, but if they’re playing a short game like day trading, finding stocks with the most momentum can provide an easy entry and exit strategy to cash out on the same day. 

Beta only provides information about the momentum of individual stocks in relation to the stock market. Active trading involves looking at other stats and making decisions accordingly. However, high beta stocks will have price swings that can lead to great gains, if bought and sold appropriately. It’s important for active traders using the beta calculation (and other stats) to consider the alpha and beta of a stock—the former being an indicator of how much return a stock historically provides relative to its risk. 

Of course, investors looking for the most stable investments will want to look at a capital asset like rental property, treasury bills, or mutual funds—avoiding higher beta stocks, or even the whole process of analyzing beta and calculating risk as they buy and sell securities. But while these investment strategies can minimize losses, they don’t fund great gains, either. Investors who want steady gains but minimal risk should consider looking into securities that generate dividends

High Beta Stocks

Beta is one of the fundamental regression analysis metrics that an investor can use to assess the volatility of a stock compared to a benchmark index, such as the S&P 500. Although beta is not used to predict specific price movement, it provides a general sense of how a stock will trend compared to the overall market. 

Investors with a low-risk tolerance will probably want to have stocks with a beta of 1 or lower. Investors with a higher risk tolerance should look at stocks with a beta above 1 because of the potential for a higher return. Investors who are not interested in cashing out on a risk-reward relationship might explore other options, such as the best growth stocks. But even then, a stock’s beta can provide a forecast of how volatile it will be in the future—and in turn, build a capital asset pricing model to determine potential reward. 

Because of its utility as an assessment of volatility, beta is a metric used in both fundamental analysis and technical analysis. Beta can help investors take an objective look at their portfolio and give them direction on how to maintain proper diversification. However, like any metric, beta has its limitations. Investors who are looking for specific indicators will need to look beyond beta to assess if a stock is right for their portfolio, such as a fundamental analysis of a company.

Enter your email address below to receive a concise daily summary of analysts' upgrades, downgrades and new coverage with MarketBeat.com's FREE daily email newsletter.