1. It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm is negative. It is possible for a firm to have an overstated weighted average cost of capital (WACC) if there are idle assets on the balance sheet.

Is it possible for an asset to have a negative beta What would the expected return on such an asset be why?

Yes, a risky asset can have a negative beta because if a risky asset has a zero-beta portfolio, then the return would be equal to the risk-free rate. If risky assets have a negative beta portfolio, then the return would be less than the risk-free rate.

Can a stock have a negative beta explain?

Negative beta: A beta less than 0, which would indicate an inverse relation to the market, is possible but highly unlikely. Some investors argue that gold and gold stocks should have negative betas because they tend to do better when the stock market declines. Many new technology companies have a beta higher than 1.

Can beta be negative or zero?

Yes, beta can be negative. To see how and why, consider what beta measures: the risk added by an investment to a well diversified portfolio. By that definition, any investment that when added to a portfolio, makes the overall risk of the portfolio go down, has a negative beta.

What does a beta of zero mean?

zero systematic risk
A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. Such a portfolio would have zero correlation with market movements, given that its expected return equals the risk-free rate or a relatively low rate of return compared to higher-beta portfolios.

It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm are negative. a. b. 8. In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are interested in ex ante (future) data.

Can a negative expected return be produced with a positive beta?

Adding this number to the risk-free rate of return will give you your expected return for the security. The only way to produce a negative expected return with a positive beta is if the risk-free rate of return exceeds the overall return of the market.

What should the beta of a stock be?

For example, a beta of .5 suggests that you should expect the return of the stock to change by a positive .5 percent for each 1 percent change in the market return.

How is the beta of a security determined?

Your risk premium, or how much you need to earn to compensate for the level of risk that you undertake when choosing a particular security, is determined by subtracting the risk-free rate of return from the overall return of the market and multiplying it by the beta of the individual security.