The Beta the better

Jan 25th, 2010 – Comment

Until the MACD turns or we get a bounce off the 200 day moving average YRI is in a downtrend and the trend is your friend till it ends.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Yamana

Hi,

Could you tell me what is happening with Yamana gold recently. compared to Eldorado gold and other gold companies Yamana seems to go down more. Recently there has been more selling on strength than buying. any reason why it is accelerating downwards.

Thank you,

Rafi

Hi Rafi,

Thanks for the assignment. How Yamana Gold Inc. ( YRI TSX) trades compared to other gold producers can be attributed to a number of factors but one metric you should pay attention to is a stock’s beta.

Beta measures a stock’s comparable movement to the market. A stock that has a beta of 1 follows the market in lock step. The market rises by 1% the stock rises by 1%. If the market falls by 1% then the stock falls by 1%.

A stock with a beta greater than 1  will move higher and lower than the market while a stock with a beta lower than one will not rise as much or fall as far as the market.

In your case you are comparing Yamana which has a beta of 1.01 with Eldorado which has a beta of 0.86.  When the market is up 1% Yamana rises slightly more than Eldorado and similarly when the market falls Yamana falls more than Eldorado.

It would be worth your time to research the beta of all the stocks that you are interested in so that you have a good grounding in how a stock responds to the market environment.

yri

The three year chart for YRI is worth looking at to further the analysis of how you should manage this stock. The stock has pulled back and is currently testing support on its 200 day moving average. YRI has tested support at this level before but if it doesnt hold it will then test support at $10.00.

 

 

yri2

The six month chart provides a better view of the most recent trading in the stock. The MACD provided a sell signal in December when the stock traded close to $15.00 and has yet to indicate a turn to the upside.

Until the MACD turns or we get a bounce off the 200 day moving average YRI is in a downtrend and the trend is your friend till it ends.

 

Happy Capitalism!

 

 

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