Question

Find one company that has negative beta. Also, explain what does that negative beta say about the risk of investment in that company?

Answer 1

Post Holding Inc has a beta of -0.35.sIt is primarily involved in businesses like manufacturing and marketing of ready-to-eat cereals mainly in the U.S. and Canada.

A negative beta means that the stock will move in the opposite direction of the stock market.

A portfolio built to aggressively grow in value with little regard for risk should include stocks with betas greater than one. A negative beta stock would be out of place in that portfolio. However, a portfolio designed to mitigate risk and limit losses should have lower beta investments. Negative beta stocks could have a place in that portfolio.

It’s important to remember that a negative beta stock does have a relationship to the stock market. It moves in the opposite direction. In a falling market, the negative beta investments will provide a hedge because they will increase in value. However, in a rising market, the negative beta investments will fall in value and become a drag on the portfolio. Negative beta stocks can add value to a portfolio, but they do come with their own set of risks.