The Daily Technical #83: Where can you find the financial reports of public companies?

Good morning. Welcome to the 83rd edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
Explain the concept of beta (β).

Beta quantifies a security's systematic risk relative to the market. Said another way, beta equals the covariance between expected returns on the asset and the market, divided by the variance of expected returns on the market.

A company with a beta of 1.0 would expect to see returns consistent with the overall stock market returns. If the market has gone up 10%, the company should see a return of 10%. A company with a beta of 2.0 would expect a return of 20% if the market had gone up 10%.

• β = 0: No sensitivity to market movements.

• β < 1: Low sensitivity; less impact from market changes.

• β > 1: High sensitivity; amplified response to market changes.

• β < 0: Negative sensitivity; moves opposite to market trends.

Common Mistakes

1. Wrongly associating beta values solely with risk levels without considering market correlation. Beta quantifies how closely a security's movements align with the market, not the overall risk.

2. Skipping over the implications of a negative beta. A negative beta suggests the security moves inversely to the market, meaning it could increase in value during market downturns.

3. Assuming beta provides precise future returns. Beta offers an expectation based on past data and aligns with market movements but doesn't guarantee exact future performance.

TL;DR

• Beta measures systematic risk relative to the market.

• Calculate beta by dividing asset-market covariance by market variance.

  • β = 1: Security moves in line with market changes.

  • β < 1: Security less sensitive to market fluctuations.

  • β > 1: Security more sensitive; moves amplified by market changes.

  • β < 0: Security moves opposite to market direction.

TODAY’S QUESTION
Where can you find the financial reports of public companies?

Type your answer here. Within 60 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
See you tomorrow,

Mike Lukasevicz
Founder @ HirePrep