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Decoding Negative Beta: Zoom Video Communications



Beta is a measure of the volatility of a stock or other security in relation to the overall market.

It indicates how much a security's price tends to move in response to changes in the broader market.


A beta of 1 indicates that the security's price moves in line with the market. A beta greater than 1 indicates that the security is more volatile than the market, while a beta less than 1 indicates that the security is less volatile than the market.


One interesting aspect of beta is negative beta, which is a rare occurrence where the price of a security moves in the opposite direction of the overall market.


One example of a stock that has exhibited negative beta is Zoom Video Communications. During the Covid-19 pandemic, there has been an argument that Zoom may have a negative beta due to its unique circumstances.


Zoom, a popular online video conferencing platform, experienced a surge in demand during the Covid-19 pandemic as people shifted to remote work and virtual meetings. This led to a plausible argument that if the pandemic persisted and the economy suffered, Zoom would perform well, but if the pandemic eased and people returned to face-to-face meetings, Zoom's growth could be impacted.


The data supports this theory, as during the period from March 13, 2020 (when the US declared Covid-19 a national emergency) until August 21, 2020, Zoom had a negative beta of -0.39. This was a dramatic change from its pre-pandemic days when it had a positive beta of 1.81 since its IPO in April 2019 until the end of 2019.


However, more recently, Zoom appears to be reverting to a high positive beta stock once again.


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