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|  | DECEMBER 12, 2003
 STOCK SCREENS By Michael Kaye, CFA Accentuating the Negative Beta Seeking diversification? S&P finds top-ranked stocks with volatility values that show their tendency to move opposite the market Investors wishing to track the volatility of a stock's price compared with the broader market rely on a measure called beta. Standard & Poor's Compustat calculates betas for all U.S. stocks for which a five-year trading history has been compiled. Here's how it works. If a stock or stock fund moved exactly as the market moved, it would have a beta of 1. An issue with a beta of 1.5 tends to move 50% more than the total market, in the same direction. An issue with a beta of 0.5 tends to move 50% less. Thus, high beta is typical of a volatile stock. Low beta is typical of a stock that moves less than the market as a whole. HEDGING YOUR BETS. But not all stocks move in the same direction as the overall market. A stock with a negative beta moves in the opposite direction. With a beta of -1, a stock has the same volatility as the market -- but tends to rise when the market falls and vice versa. All well and good, but how can investors put such measures to use? For those seeking to diversify their portfolios with some countertrend stocks, it may be wise to include some issues with negative betas. They may provide diversification benefits to portfolios that are tied to the S&P 500-stock index. That's the starting point for this week's screen. We looked for stocks with a negative beta relative to the S&P 500 over the last five years. And we included one final filter: The stocks had to carry S&P investment rankings of 5 STARS, or buy. That means that S&P analysts expect them to outperform the overall market in the next 6 to 12 months. Five names emerged. Note the presence of companies in the health-care and consumer-products industries -- both generally considered "defensive" groups.
 Kaye is a portfolio services analyst for Standard & Poor's All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
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