Wall Street Journal doesn’t understand the concept of Beta via /r/wallstreetbets #stocks #wallstreetbets #investing


Wall Street Journal doesn’t understand the concept of Beta

In their flawed article today, the Wall Street Journal did the following calculation.

https://www.wsj.com/articles/how-we-analyzed-wall-street-block-trades-11648647951

” S&P Global Market Intelligence classifies Kraft Heinz as a consumer staples company. On Aug. 7, 2018, the S&P 500 Consumer Staples Index closed down 0.60%, giving Kraft Heinz a market-adjusted return for the day of negative 1%.

If Kraft Heinz’s share price had mirrored the performance of the consumer-staples sector, falling 0.6% instead of 1.6%, it would have closed the day at $61.95. If Morgan Stanley got the same 2.4% discount on that price, the bank would have paid $60.50 per share.”

They think that Kraft Heinz moves proportionally to the S&P 500 Consumer Staples Index. Below is how the world really works. On days of material movement, i.e. on days when KHC’s stock price moved 1% or more up or down, it moves an AVERAGE OF 16X THE CHANGE IN THAT INDEX (11x the change if you exclude outliers.) That number, 16 or 11, is the stock’s beta on comparable days. You can replicate the calc from the data here. I’d attach the spreadsheet but I don’t know how.

https://finance.yahoo.com/quote/%5ESP500-30/history?period1=736473600&period2=1648684800&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true

https://finance.yahoo.com/quote/KHC/history?period1=1436140800&period2=1648684800&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true

I emailed this to their editors but it’s just dang embarrassing. How do you make a huge accusation when you don’t even understand Beta?

Sharing here on the off chance any new WSB folks don’t know what beta is and want an example.

Edit: Here’s the spreadsheet with the calc, if this service works. https://www.dropbox.com/s/3cpnjstgkfz3tbr/HistoricalPrices.xlsx?dl=0

Submitted March 31, 2022 at 11:29PM by moviemail
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