Monday, September 24, 2012

Facebook's beta

This link popped up in my RSS reader today - from two different sources - finance II at tepper and newmark's door.

The basic finding:
The return correlation between Facebook and Zinga is greater that the correlation between Facebook and the S&P 500 and the trading volume correlation between FB and the S&P 500 is greater than the volume correlation between FB and Zinga.

I thought I'd run the numbers - here's what  I got:
FB SP500 ZNGA
covar(i,m)0.00001535 0.00007962 (0.00002087)
correl(i,m) 0.04 1.00 (0.04)
var(i) 0.001625 0.000080 0.003155
ann SD (i)
13.962%
3.091%
19.457%
beta (i) 0.19281.0000 (0.2622)
Correl of volume 0.2592 1.00000.3256
R-sqr from CPM
0.18%
0.17%

Obviously these are two stocks that have very low market risk - less that 1% of their returns is explained by the S&P 500.   ZNGA has a negative beta, and the confidence interval for both betas is huge.

In other words, these are two stocks whose risk is virtually all idiosyncratic.  It is probably a mistake to put any weight on these beta estimates.