Question

Explain what the values of the betas (the slope coefficients in the regression) indicate and discuss the
factors that might explain the differences in the values of the betas of the four companies below:

	Coefficient beta
HLG.NZ	0.5883
WHS.NZ	0.3542
RYM.NZ	1.3996
FPH.NZ	1.6321

Answer 1

The beta (β) of an investment security (i.e. a stock) is a measurement of its volatility of returns relative to the entire market. It is used as a measure of risk and is an integral part of the Capital Asset Pricing Model. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

Beta of 0.5883 for HLG.NZ indicates that HLG.NZ moves with market with the factor of 0.5883. That is, if market goes up by 1%, HLG.NZ is expected to go up by 0.5883%. Similarly, if market goes down by 1%, HLG.NZ is expected to go down by 0.5883%.

Beta of 0.3542 for WHS.NZ indicates that WHS.NZ moves with market with the factor of 0.3542. That is, if market goes up by 1%, WHS.NZ is expected to go up by 0.3542%, or if market goes down by 1%, WHS.NZ is expected to go down by 0.3542%.

Beta of 1.3996 for RYM.NZ indicates that RYM.NZ moves with market with the factor of 0.3542 (it is more volatile than the market).That is, if market goes up by 1%, RYM.NZ is expected to go up by 1.3996%, or if market goes down by 1%, RYM.NZ is expected to go down by 1.3996%.

Beta of 1.6321 for FPH.NZ indicates that FPH.NZ moves with market with the factor of 1.6321 (more volatile than market) . That is, if market goes up by 1%, FPH.NZ is expected to go up by 1.6321%, or if market goes down by 1%, FPH.NZ is expected to go down by 1.6321%.

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