The risk of investing in the automotive sector is slightly higher than the risk presented by the broader market.

The automobile parts subsector of the automotive sector poses an even more substantial risk but offers the potential for greater returns when the market is strong. As of January , increasing economic stability has led to decreased volatility in the automotive industry compared to much of the preceding decade. Automakers, such as General Motors and Chrysler, that were embroiled in crises during the late s and early s, subsequently regained financial footing after receiving large government bailouts.

The auto parts subsector, however, remains volatile amid ongoing labor negotiations at many large automakers and fluctuating materials prices due to economic instability around the globe.

An easy way to compare a sector's risk to that of the broader market is to look at its beta coefficient. This number measures the volatility of a sector, with a beta of 0 representing a completely stable sector that never fluctuates up or down.

The higher the beta, either positive or negative, the more volatile the sector.

A positive beta indicates a sector that moves up and down in the same direction as the broader market, while a negative beta represents one that moves inversely with the broader market.

The broader market is represented by a beta of 1. As an example, assume the automotive sector has a beta of 1. Consider two stocks, one representing a typical stock in the broader market and the other representing a typical automotive stock. Both have starting values of 1, A bull market pushes the first stock to 1, Using the same example, assume the auto parts subsector has a beta of 1.

Auto Industry News - Automobile Industry Statistics - Car Reviews

A typical auto parts stock in the same scenario, then, increases in value from 1, to 1, While sectors with higher betas offer stronger returns than the broader market during good times, they're fraught with greater risks during bear markets and recessions. For this reason, many investors hedge exposure to automotive and auto parts stocks by dedicating a portion of their portfolios to sectors with lower or even negative betas. Through this diversification , an investor constructs a portfolio with sectors capable of aggressive gains during bull markets along with other sectors that mitigate losses during bear markets.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund. Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin?

This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. How does the risk of investing in the automotive sector compare to the broader market?

By Investopedia March 30, — 3: Learn how investing style, appetite for growth and risk tolerance influence how much of his portfolio an investor allocates Learn why investing in the automotive sector is a smart move for a growth investor looking for greater returns than offered Understand how investors use the beta coefficient to evaluate how the risk of investing in the banking sector compares to Learn how the risk of investing in the drugs sector compares to the broader market and what steps investors take to mitigate Learn why the airline sector is almost never the focal point of a growth investor's portfolio but is sometimes used as a Learn how investing in noncyclical and counter-cyclical sectors helps investors hedge against exposure to automotive and Learn how to properly use this measure that can help you meet your criteria for risk.

Beta says something about price risk, but how much does it say about fundamental risk factors? We compare the Beta values obtained from financial sources. Also, how to compute Beta using Excel.

Role of the Auto Industry in the Stock Market | Finance - Zacks

Beta is a measure of volatility. Find out what this means and how it affects your portfolio. In conjunction with stock valuation ratios like the price-to-earnings ratio and the price-to-earnings-growth ratio, a stock's measure of volatility known as beta can help investors build a diversified Examine the theoretical and statistical relationship between beta and volatility to identify three factors that limit beta's explanatory value. Learn how the bet against beta strategy is used by a large hedge fund to profit from a pricing anomaly in the stock market caused by high stock prices.

Which benchmarks / indexes track the automotive sector? | Investopedia

We explain two methods for calculating the beta of a private company. Check out five high-beta stocks that can help make your portfolio more exciting. Low beta may not necessarily mean low risk when it comes to some smart beta strategies. Better known as "global beta", international beta is a measure Smart Beta ETF is a type of exchange-traded fund that uses alternative A statistical measure of the dispersion of returns for a given An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other.

A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.

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