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Low Beta Stocks (2024)

The stocks with betas less than 1.0, indicating lower volatility than the overall market.

Beta is a calculation that measures relative volatility of a stock in relation to a benchmark, typically the S&P 500. A stock with a beta of 1.0 has historically experienced price fluctuations in line with the general stock market.

Stocks with low beta rise and fall less than the overall market. Many stocks with a low beta are well-established, blue-chip companies.

For example, if stock ABC has a low beta of 0.5 and the S&P 500 increases by 1%, you can expect stock ABC to increase by about 0.5%.

Conversely, if the S&P 500 decreases by 5%, ABC will decrease by only about 2.5%.

Long-term investors can benefit by owning low beta stocks because they lower the overall volatility of their portfolio.

For example, consider this scenario: Let’s say you own an equal amount of 2 stocks, one with a beta of 1.0 and the other with a beta of 0.5. If the market fell by 2%, you can expect your portfolio to only lose 1.5%.

In this sense, low beta stocks are “safer” than the overall market.

Again, let’s assume you own the 2 stocks above, with betas of 1.0 and 0.5.

Whenever the market gains 1%, your portfolio will likely only gain 0.75%. This means that, while you will experience less volatility than the overall market, you may also have lower long-term returns.