Estimated Beta Coefficient of Ford Motor Company

Subject: Company Analysis
Pages: 2
Words: 298
Reading time:
< 1 min

The Ford Motor Company estimated beta coefficient, according to MSN money, is 2.48. The Oxford dictionary defines risk as “the possibility of suffering harm or loss.” In business, just like in any other venture in life, people have to face risks. In business undertakings, the investor has to be content with two types of risk: nonsystematic and systematic risk. Nonsystematic risk is company-related and therefore can be diversified away if the investor builds a portfolio of investments.

Systematic risk is the possibility that the market may take an unexpected unfavorable swing and take the investment down with it. Even a well-diversified investor is not immune to this state of affairs. Petty et al. nicely define beta as “…a measure of market risk or systematic risk, which is the risk that remains even after a portfolio has been diversified.” To decide on whether to invest in Ford Motor Company (FMC), it is prudent to interpret how low or how high the company’s beta is compared to the market beta.

The market beta is usually 1. If FMC’s beta were less than 1, one can say that the market risk is pretty low. However, since FMC’s beta is 2.48, it means that the investment is riskier than the fully diversified general market index. I would consider adding this investment to my portfolio because it is risky but not too risky. If I became risk aversive and chose only low beta investments, I would not get any returns. The risk/return trade-off dictates that the higher the risk, the higher the possibility of loss but also the higher the returns. I would rather take an investment that is not volatile so that I can remain in the middle ground.