Rate of change of beta

Question

While viewing data for an individual stock, I always want to see how much the beta has changed. I see this useful for three reasons:

• Trends (up, down, or stable) in the beta
• The 60-month beta hides volatility that occurred in specific time frames (such as recent volatility!)
• The big one: Does this stock live up to its beta? Or does it miss expectations generated from past data? (is the beta for this stock a good indicator of its future or does this stocks beta change far more than others?)

Is there a reason why sites like Google and Yahoo Finance don't provide this information? Would this actually be useful?

Answer 1

This is (almost) a question in financial engineering. First I will note that a discussion of "the greeks" is well presented at https://en.wikipedia.org/wiki/Greeks_(finance) These measures are first, second and higher order derivatives (or rate of change comparisons) for information that is generally instantaneous. (Bear with me.) For example the most popular, Delta, compares prices of an option or other derived asset to the underlying asset price. The reason we are able to do all this cool analysis is because the the value of the underlying and derived assets have a direct, instantaneous relationship on each other.

Because beta is calculated over a large period of time, and because each time slice covered contributes equally to the aggregate, then the "difference in Beta" would really just be showing two pieces of information:

• Impact of today's asset and market price on Beta
• Impact of (today minus 3 years)'s asset and market price on Beta

Summarizing those two pieces of information into "delta beta" would not be useful to me.

For further discussion, please see http://www.gummy-stuff.org/beta.htm specifically look at the huge difference in calculation of GE's beta using end-of-month returns versus calculation using day-before-end-of-month returns.

Answer 2

This is a useful metric in that it gives you a trust factor on how reliable the beta is for future expectations It is akin to velocity and acceleration First and second order derivatives of distance / time. Erratic acceleration implies the velocity is less trustworthy Same idea for beta

Answer 3

If you do not need it for a day or a week or something like that, an easy thing to do to get the beta of a security is to use wolframalpha. Here is a sample query:

BETA for AAPL

Calculating beta is an important metric, but it is not a be all end all, as there are ways to hedge the beta of your portfolio. So relying on beta is only useful if it is done in conjunction with something else. A high beta security just means that overall the security acts as the market does with some multiplier effect. For a secure portfolio you want beta as close to zero as possible for capital preservation while trying to find ways to exploit alpha.