What information does the Risk Analysis provide that we have available?

PURE RiskAnalysis, Risikoanalyse

Subscribers of the Platinum package will receive the risk analysis within the Index-market letters, e.g. PURE Index Dow, or DAX, etc. So they will also receive information about the current beta factor of the stock and the current P/R (price earnings ratio).

Thereafter, the PURE Bond-Share P/E Ratio is calculated which is determined from the current P/E and the return P/E. This provides you with information about the profit earnings ratio compared to the government bond.

The beta factor

In finance the beta factor of a stock is a derived number from the beta which indicates the volatility of a financial instrument to its overall market (index). It is therefore also a risk indicator of assets.

It was developed by William Sharpe, who subsequently won the Nobel Prize.

Stocks with a beta greater than plus 1 are also referred to in Anglo-American specialist jargon as „aggressive stocks.“ On the other hand, stocks with a beta of less than plus 1 are considered to be „defensive issues.“

 

Comparison: P/E (price earnings ratio) and bond yields

US investors like to use the bond P/E to determine whether the market is stock-friendly. The thought behind this is that competition exists between a supposedly safe bond investment on the one hand, and a dividend earning stock with potential for price appreciation, on the other hand.

If the interest rate level of the bond is attractive then it will be more difficult for the stock to attract the attention of investors. However, if interest rates fall back to unattractive levels then stocks are quite often the better investment.

Consequently, the stock P/Es of the individual stocks and the bond P/E of 10 year bonds in a similar market environment are compared to each other and correlated.

The PURE Bond-Share P/E Ratio or the quotient of the two P/Es is important when considering this ratio.

Benjamin Graham, forefather of value-investing theorized that a stock was worth buying if its earnings yield was at least twice as high or higher than the bond yield.