I only hope that no one is making investment decisions based on this number… amen
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@ Highy Yielder, no you were the person who didn’t seem to get that gasoline was refined from crude oil, let’s not go there!
@Mobius Striptease; what is the mathematical relationship between financial leverage and beta?
I agree Beta should not be used as a good measure of risk; use Standard Deviation of percent change.
Saying Leverage affects Beta is like saying percent Total Assets effects beta; it’s nice, it’s anecdotal. Without data to back-up your claim you sound like a politician who think because he says it, it’s true. You would need to do correlation analysis to determine whether or not there is a statistically significant relationship between a stocks Beta and it’s Leverage. That’s all I’m saying; I’m not sure how you can argue with that?
I agree to disagree
Is a companys levered beta different than it’s unlevered beta Zesty? Are you seriously saying that a company with 1% debt-to-assets instead of 99% debt-to-assets will have the same volatility? You are ridiculous - I have to hope you’re Phillip.Platt just messing with people, because this is one of the dumbest arguments I’ve ever heard.
@jcole21, good anecdotal example here. CF has near zero debt to equity (0.002) with a beta of 0.83 while SYBT has d/e of 0.74 with a beta of 0.41. According to you this should not be correct?
I think what someone alluded to earlier was that the Beta measurements are estimates of the true correlation to the market. Statistics are meant to try to find the best unbiased and efficient estimators of a true relationship, which can never be known. This point is either glossed over in the text or simply not explained in detail. Inferences and transformations of the information cause investors to try and derive a better understanding of the movement of a stock with the market in order to minimize risk and require adjusted return. However, as we know, there is a randomness to the process. Whether the interpretation and use of this information causes the true correlation to follow a predictable path violates the idea of there being an unmeasurable relationship that statistics tries to describe. Im sure Mobius would have a better explanation than this, but this is all I can regurgitate from stat theory.
Zesty Wrote: ------------------------------------------------------- > @jcole21, good anecdotal example here. CF has near > zero debt to equity (0.002) with a beta of 0.83 > while SYBT has d/e of 0.74 with a beta of 0.41. > According to you this should not be correct? I’m not talking about different companies, jackass.
@jcole21, Actually I’m not ridiculous; as you see above why would a company with a 0.1% debt to assets have more “volatility” (beta) than a company with a 6% debt to assets? So yes, a company with 1% debt to assets can have the same volatility as a company with much higher debt to assets (possibly even 99%). Assuming truth without evidence = back business decisions!
Zesty you’re missing the point. The way financial leverage comes into play is when comparing two companies betas to each other. A beta of .002 for one company all else equal would be totally different for a company that has different levels of debt. So imagine that company A and company B are completely identical in every single way EXCEPT their financial leverage. These companies betas would be different due to the leverage. That’s why if you’re given the beta for company A, you UNlever it and then RElever it using the new financial leverage ratio. Didn’t we learn this my sophomore year of college in intro finance?
@jcole21, well maybe you should read the full thread before you comment idiot! This thread was exactly about different companies!
@CF_AHHHHHHHHH, That’s exactly what I was saying but these idiots weren’t catching on! They insisted that betas across sectors could be determined by debt levels!
Earlier in this thread I wrote: @Mobius Striptease, that’s not what I’m saying genius! I’m saying leverage is not a determiner of the relationship of two equities betas across sectors/industries! I.e., if you were to look at all securities you would find securities with high leverage and low beta or high leverage and high beta. And people were still arguing with me!
And what level of the exam are you on? Do you have an MBA? The answer isn’t level three and yes, shut up.
The thread began with comparing Google and Yahoo; reading is fundamental!
Where’s the @ Reggie for my initial comment? And anyways to answer your question, I think Google rightly has a higher beta soley because it is followed much more closely by the public than the back seat Yahoo. Ie. panic overselling on bad news and overly-optimistic buying on good prospects. Whereas I doubt Yahoo has even as close a following with investors.
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