Question

Con-Agra is one of the world’s largest packaged foods companies. Take a look at it (google it): CAG (NYSE). What does the beta tell you about Con-Agra?

1. What is beta, how is it calculated, why is it relevant (or where it is not)?
2. How relevant do you feel it is with respect to Con-Agra? What does it tell you about Con-Agra?
3. Would your answer be different if the question was not about Con-Agra but instead, was about Lyft (LYFT) (NASDAQ)?

Answer 1

The beta of Con Agra is 0.74. It tells us that on an average the returns from investing in the stock of Con Agra is less volatile than the returns obtained from the stock market index.

The Beta could be calculated by running a linear regression between the returns of a particular stock against the returns of the index and by calculating the slope of the regression model. It is relevant to understand the volatility of the returns of the stock.

It is relevant for Con Agra as it helps us in understanding its returns and also deciphering whether it's returns are in line with the index or more or less volatile and thus could help us in our risk management techniques.

From the value of beta, which is 0.74, we can understand that the returns are less volatile than the index return.

Yes, the beta of Lyft is expected to be higher as it is a startup and technology company whose returns can have large volatility. Hence, the beta of Lyft should reflect this reality and thus would lead to different risk management perspectives.