Accounting Issue

The beta is a measure of a security’s or a portfolio’s volatility in relation to the market or to an alternative benchmark. In this case, we choose S&P 500 as benchmark, which has beta coefficient of 1. A beta of 1 means the security or portfolio’s price will move with the market. A beta of greater than 1 means the security would have higher volatility than the market and more risk. However, a beta of lower than 1 means the security would have less volatility than the market and more safe. In this case, we have the betas for Apple (0.79), CVS (0.60) and Google (0.88). Apple’s beta of 0.79 indicates a 0.79% change in a return on the stock for every 1% change in a return on the market (S&P 500). That is to say, if the market with a beta of 1 has 10% on return, Apple with a beta of 0.79 should have 7.9% on return. Conversely, if the market has 10% of loss, Apple should have 7.9% of loss which is lower than the market. The betas for these three stocks are all lower than 1, which means they are less volatile and safer than the market but lower return than the market. On the other hand, if the beta is greater than 1 indicates higher return than the market. In addition, a negative beta means a negative correlation. When the market grows up, the stock would go down.

By comparing the beta on linear regression and the betas found on Bloomberg and Yahoo Finance, I found that the betas from these three resources are different for the same stock. For regression analysis, the beta is the slope of the linear regression, and I used the monthly price data to calculate the betas for Apple, CVS and Google for 2011 and 2012. One stock had different betas for the following reasons: First of all, they selected different time periods. I used monthly price data for 2011 and 2012 (2 years). For Yahoo Finance, it uses monthly data for a 3 years (36 months) time period. Bloomberg perform a regression and calculate a beta by using weekly date over a two-year period....