Is it possible for a company to have a negative beta?

Is it possible for a company to have a negative beta?

• A. No, beta can only be zero or positive
• B. Yes, if the stock price moves opposite to the market
• C. Only if the market is declining
• D. No, negative beta is a theoretical concept

Answer: (B)

A company can indeed have a negative beta, which indicates that its stock price moves in the opposite direction to the broader market. Beta is a measure of a stock's volatility compared to the overall market; a negative beta suggests that when the market rises, the stock tends to fall, and vice versa. This unusual relationship can occur for specific companies or industries that are counter-cyclical, meaning they perform better during economic downturns or market declines. For example, certain assets like gold or certain types of hedge funds may exhibit this characteristic. Thus, a company with a negative beta can still be a viable investment, especially for risk-averse investors looking to hedge against market downturns. The ability to hold a negative beta is essential for portfolio diversification, as it provides balance during market fluctuations.

A company can indeed have a negative beta, which indicates that its stock price moves in the opposite direction to the broader market. Beta is a measure of a stock's volatility compared to the overall market; a negative beta suggests that when the market rises, the stock tends to fall, and vice versa. This unusual relationship can occur for specific companies or industries that are counter-cyclical, meaning they perform better during economic downturns or market declines.

For example, certain assets like gold or certain types of hedge funds may exhibit this characteristic. Thus, a company with a negative beta can still be a viable investment, especially for risk-averse investors looking to hedge against market downturns. The ability to hold a negative beta is essential for portfolio diversification, as it provides balance during market fluctuations.