What is attribution analysis? Can beta be negative if yes what does it imply?

Question

Accepted Answer

Attribution analysis is a method of analyzing the performance of an investment portfolio. Beta can be negative, implying inverse correlation with the market.

Attribution analysis is used to determine the sources of an investment portfolio's returns.
It helps investors understand which investments are contributing positively or negatively to the portfolio's performance.
Beta is a measure of an investment's volatility in relation to the market. A negative beta implies that the investment moves in the opposite direction of the market.
For example, if the market goes up by 10%, an investment with a negative beta of -0.5 would be expected to go down by 5%.

Accepted Answer

Attribution analysis is a method used in finance to evaluate the performance of a portfolio by analyzing the various factors that contributed to its returns. It helps investors understand the sources of a portfolio's gains or losses.

Regarding beta, it is a measure of a stock's or portfolio's sensitivity to market movements. A beta of 1 indicates the investment tends to move with the market, while a beta greater than 1 implies it is more volatile, and a beta less than 1 suggests lower volatility than the market.

Technically, beta can be negative. A negative beta means the investment tends to move in the opposite direction of the market. If the market goes up, a negatively betaed asset is expected to go down, and vice versa. This could imply that the asset may act as a hedge or a diversification tool in a portfolio.

However, negative beta is relatively rare, as most assets tend to have a positive correlation with the overall market.

What is attribution analysis? Can beta be negative if yes what does it imply?

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