Question

determine the beta for Starwood Hotel (HOT), Disney (DID), Abbott Laboratories (ABT), and Lockheed Martin (LMT). Discuss the possible reasons for the differences you observe among these companies.

Answer 1

Beta

Beta is a statistical measure that compares the volatility of a stock against the volatility of the broader market, which is typically measured by a reference market index. Since the market is the benchmark, the market's beta is always 1. When a stock has a beta greater than 1, it means the stock is expected to increase by more than the market in up markets and decrease more than the market in down markets. Conversely, a stock with a beta lower than 1 is expected to rise less than the market when the market is moving up , but fall less than the market when the market is moving down. Despite being rare, a stock may have a negative beta, which means the stock moves opposite the general market trend.

Starwood Hotels & Resorts Worldwide Inc. shows a Beta of N/A.
This is significantly lower than 1. The volatility of Starwood Hotels & Resorts Worldwide Inc. according to this measure is significantly lower than the market volatility.

The Walt Disney Company shows a Beta of 0.75.
This is slightly lower than 1. The volatility of The Walt Disney Company according to this measure is slightly lower than the market volatility.

Abbott Laboratories shows a Beta of 1.00.
This is very close to 1. The volatility of Abbott Laboratories according to this measure is consistent with the market volatility.

Lockheed Martin Corporation shows a Beta of 0.94.
This is very close to 1. The volatility of Lockheed Martin Corporation according to this measure is consistent with the market volatility.

Possible reason for the difference can be-

In general market beta is 1, where companies beta can be higher and lower according to the companies ,which is related to systematic risk and volatality. If any company have lower beta let’s assume 0.5 which is lower than market beta means that company has low systematic risk ,company is stable and less volatality means premium getting by investing on that company will be low, where as if a company have higher beta as assume 1.5 as compare to market beta then there is high risk but the premium by investing on that company will be high , company share share price can go up and down very fastly ,so this all reason makes the companies beta different.