High Beta Stocks for 2023 - Meaning, Examples and How to Invest

Ben Broadwater

Posted June 12, 2023

A high beta stock is a stock whose price moves more than the overall market. This means that if the market goes up by 10%, a high beta stock could go up by 15% or more. Conversely, if the market goes down by 10%, a high beta stock could go down by 15% or more.

Beta is a measure of volatility, and it is calculated by comparing the stock's price movements to the movements of a benchmark index, such as the S&P 500. A stock with a beta of 1 has the same volatility as the benchmark index. A stock with a beta of 2 is twice as volatile as the benchmark index, and a stock with a beta of 0.5 is half as volatile as the benchmark index.

High beta stocks are often considered to be riskier than low beta stocks, but they also have the potential for higher returns. This is because high beta stocks tend to move more in response to changes in market sentiment. When the market is bullish, high beta stocks tend to outperform the market. When the market is bearish, high beta stocks tend to underperform the market.

high beta stocks

Examples of High Beta Stocks

Some examples of high beta stocks include:

  • Technology stocks: Technology stocks are often high beta stocks because they are sensitive to changes in technology trends. For example, if there is a new technological breakthrough, technology stocks could see their prices rise significantly.

  • Biotech stocks: Biotech stocks are also often high beta stocks because they are sensitive to changes in the regulatory environment. For example, if a new drug is approved by the FDA, biotech stocks could see their prices rise significantly.

  • Small-cap stocks: Small-cap stocks are generally more volatile than large-cap stocks, and they tend to have higher betas. This is because small-cap stocks are more sensitive to changes in market sentiment and economic conditions.

How to Invest in High Beta Stocks

If you are considering investing in high beta stocks, there are a few things you should keep in mind:

  • Do your research: Before you invest in any stock, it is important to do your research and understand the company's business model and financials. This will help you make an informed decision about whether or not the stock is a good investment for you.

  • Diversify your portfolio: It is important to diversify your portfolio by investing in a variety of stocks, including high beta and low beta stocks. This will help to reduce your risk if one type of stock underperforms.

  • Use stop-loss orders: A stop-loss order is a type of order that automatically sells a stock if it falls below a certain price. This can help you to limit your losses if the stock price falls sharply.

List of 15 High Beta Stocks for 2023

Here is a list of high beta stocks with their ticker and beta:

Stock

Ticker

Beta

Tesla

TSLA

1.55

Roku

ROKU

2.25

Upstart

UPST

2.45

ZoomZM1.95

MongoDB

MDB

2.35

DataDog

DDOG

2.20

Twilio

TWLO

2.00

Nike

NKE

1.30

CloudFlare

NET

2.15

PayPal

PYPL

2.10

Apple

AAPL

1.35

OktaOKTA1.90

Amazon

AMZN

1.25

Asana

ASAN

1.80

Walmart

WMT

1.20

How to Calculate High Beta Stocks

Beta is a measure of a stock's volatility in relation to the overall market. It is calculated by comparing the stock's price movements to the movements of a benchmark index, such as the S&P 500. A stock with a beta of 1 has the same volatility as the benchmark index. A stock with a beta of 2 is twice as volatile as the benchmark index, and a stock with a beta of 0.5 is half as volatile as the benchmark index.

To calculate high beta stocks, you can use the following formula:

Beta = (R_stock – R_risk-free) / (R_market – R_risk-free)

Where:

  • R_stock is the stock's historical return
  • R_market is the market's historical return
  • R_risk-free is the risk-free rate of return, such as the yield on a U.S. Treasury bill

For example, let's say you are interested in calculating the beta of Apple stock. Apple's historical return over the past year was 20%, the market's historical return over the past year was 15%, and the risk-free rate of return is 2%.

Beta = (20% – 2%) / (15% – 2%) = 1.25

This means that Apple stock is 25% more volatile than the market.

You can use this formula to calculate the beta of any stock.

What is a Good Beta for a Stock?

There is no one-size-fits-all answer to this question, as what constitutes a "good" beta for a stock will vary depending on an investor's individual risk tolerance and investment goals. However, in general, a beta of 1 is considered to be neutral, meaning that the stock's price movements are expected to be in line with the overall market. A beta of less than 1 indicates that the stock is less volatile than the market, while a beta of more than 1 indicates that the stock is more volatile than the market.

Investors who are looking for stocks that are less risky may prefer to invest in stocks with betas that are below 1. These stocks are less likely to experience large swings in price, which can help to reduce the risk of losses. However, investors who are looking for stocks that have the potential for higher returns may prefer to invest in stocks with betas that are above 1. These stocks are more likely to experience large swings in price, but they also have the potential for higher returns.

Risks of investing in high beta stocks

As mentioned above, high beta stocks are often considered to be riskier than low beta stocks. This is because they are more volatile and they tend to move more in response to changes in market sentiment. This can lead to large swings in the price of a high beta stock, which can make it difficult to time your entry and exit points.

Another risk of investing in high beta stocks is that they are more likely to experience margin calls. A margin call is a demand from your broker to deposit additional funds into your account to cover a decline in the value of your investments. This can happen if you have borrowed money to buy high beta stocks and the price of the stocks falls.

Conclusion – Potential Rewards of Investing in High Beta Stocks

Despite the risks, high beta stocks also have the potential for higher returns than low beta stocks. This is because they tend to outperform the market when the market is bullish. If you are comfortable with the risks, high beta stocks can be a good way to add some growth potential to your portfolio.

Ultimately, the best way to determine what constitutes a "good" beta for a stock is to consider your individual risk tolerance and investment goals. It is important to note that beta is a historical measure of volatility. It is not a guarantee of future performance. The beta of a stock can change over time, so it is important to monitor the beta of any stock that you are considering investing in.

Check out the rest of WealthDaily.com for more exciting investment opportunities.

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