Question: Which has a higher beta, a bank or a copper/gold producer?
I thought the answer would have been the bank, as the copper/gold producer is slightly diversified (when markets go down, gold generally does well and copper prices slide), whereas when markets are down, banks follow pretty steadily.
However, the copper/gold producer has a substantially higher beta than the bank mentioned.
Maybe my understanding of beta is incorrect. Any guidance?
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Bank --> utility.
any elaboration on that?
It would certainly depend on which copper/gold miner and which bank as beta can be a proxy for risk. For example, I would expect a mining company that operates in a questionable foreign country with government turmoil (and therefore a more volatile stock price) to have a higher beta than PNC or Wells Fargo, for example.
depends on what you're regressing against. it also is a more meaningless number as the correlation gets lower obviously so look at that too
But in general, is it right for a bank to have a lower beta than a slightly diversified copper/gold miner? I'm thinking that generally, the bank would be higher but the companies they specifically asked were just an exception.
banks are market makers in theory the bank takes on very little risk, and with the advent of syndication the bank can maintain low risk exposure to its loans to a certain extent. In theory then, banks should have lower market risk.
beta is a horrible fucking measure. i wouldn't honestly give two shits about it.
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