This Wall Streeter Churns With the Market

The following video is from Monday's installment of Where the Money Is, in which Fool analysts Matt Koppenheffer and David Hanson highlight for investors the most important stock news from the financial sector.

Shares of The Blackstone Group (NYSE: BX  ) took a 5% hit today. In this segment, Matt talks about a lesser-discussed metric here at the Fool, the beta of a stock, and tells investors that Blackstone's high beta indicates that this stock tends to experience an increased amount of volatility when compared to the broader market.

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The relevant video segment can be found between 4:24 and 5:25.

For the full video of today's Where the Money Is, click here.

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  • Report this Comment On June 24, 2013, at 6:30 PM, talotu wrote:

    While there are some useful applications of beta, it gets misused so often (as in this article) that I suspect it would be best forgotten completely.

    For example:

    "high beta indicates that this stock tends to experience an increased amount of volatility when compared to the broader market"

    Beta is not volatility, it's the measure of how much volatility of a stock can be expected only based on fluctuations in the market as a whole.

    Consider VTI vs MELA

    VTI's beta is 1.05, MELA's is -.07

    (I pulled those straight from yahoo finance as of today).

    Does that mean that VTI has 15x as much volatility as MELA?

    Obviously not, MELA is at this point a penny stock which has had a move of 5% or more 5 times in the last 10 days, while VTI has moved with the market (as one would expect from a large cap index fund).

    What beta does tell you is that MELA's stock moves have nothing to do with the market at large, having a very weak negative correlation that accounts for less than 1% of it's volatility, while effectively 100% of VTI's volatility can be attributed to market fluctuations.

    If I go bet $100,000 on a hand of blackjack I'll probably have volatility, but I won't have any beta....

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