Macro Sensitivity Beta

Overview

This pillar calculates a stock's specific sensitivity to major macroeconomic factors like interest rates and oil prices. It helps you understand how external economic forces, not just company news, will likely impact a stock's value.

What It Does

Using historical data, this pillar performs a regression analysis to measure the correlation between a stock's price movements and changes in key economic indicators. It isolates and quantifies how much the 10-year Treasury yield or crude oil prices influence the stock. The result is a 'beta' score for each factor, indicating the stock's expected reaction to a 1% move in that indicator.

Why It Matters

Most analysis is company-focused, but macro trends can dominate market movements. This pillar provides a top-down view, revealing hidden risks and opportunities tied to the broader economy. It gives you an edge in predicting how stocks will perform during major economic events, like Fed announcements or energy crises.

How It Works

First, the pillar gathers 90 days of historical daily price data for a specific stock and for macro indicators like the US 10-Year Treasury Yield (US10Y) and WTI Crude Oil. It then calculates the daily percentage change for each data series. Finally, it runs a multiple linear regression to determine the beta coefficients, which represent the stock's sensitivity to each macroeconomic factor.

Methodology

The core calculation uses a multiple linear regression model: Stock Return = α + β1(US10Y Return) + β2(Oil Return) + ε. Analysis is performed on a 90-day rolling time window using daily percentage changes for all variables. The key outputs are the beta coefficients (β1, β2), which quantify the magnitude and direction of the stock's sensitivity.

Edge & Advantage

This pillar isolates macro risk from company-specific news, allowing for precise bets on how a stock will react to Fed policy or global supply chain news.

Key Indicators

• Interest Rate Beta

  high

  Measures the stock's expected percentage price change for every 1% change in the 10-year Treasury yield.

• Oil Price Beta

  high

  Quantifies the stock's sensitivity to a 1% change in WTI crude oil prices, indicating its exposure to energy costs.

• Market Beta (SPY)

  medium

  Shows the stock's volatility and correlation relative to the broader S&P 500 index.

Data Sources

• Federal Reserve Economic Data (FRED)

  Provides historical data for the 10-Year Treasury Constant Maturity Rate (DGS10).

• Yahoo Finance

  Provides daily historical closing prices for individual stocks and market indices like the S&P 500.

• U.S. Energy Information Administration (EIA)

  Official source for historical West Texas Intermediate (WTI) crude oil prices.

Example Questions This Pillar Answers

• → Will tech stocks (QQQ) underperform industrial stocks (XLI) if the Fed raises interest rates next month?
• → Will airline stocks drop more than 5% if oil prices surpass $100 per barrel?
• → Which of these bank stocks will benefit most from a 0.5% increase in the 10-year Treasury yield?

Tags