27 October 2009

What does Beta tell us about the market?

Theoretically when the market is down, high beta stocks should lead the way with low beta stocks missing much of the ride on the downside. And the reverse holds true going up? Not necessarily. We use Ford's VMO as our primary market indicator. It worked really well during the market rally this summer. But now plain old beta seems to be a better measure as we struggle through this bearish period. At 11:30, the high VMO names were outperforming by 54bps (on top of 204 bps yesterday.) OTOH low beta stocks are 152bps ahead of the high betas. Yes there is an inverse correlation. Both factors are confirming a flight to safety. Here's a chart dump which is (pretty much) self-explanatory.

1 comment:

  1. I never know how Blogger will display these charts. It's a gamble every time.