Please take a look at the attached picture. It shows Tesla stock price (ticker symbol: TSLA) over the last few years with S&P 500 index (ticker symbol: ^GSPC) drawn in blue on top of the chart. As you can see the price of TSLA stock was several times more volatile than the price of S&P 500 index. However, many services (such as Yahoo! Finance (Links to an external site.)Links to an external site.) report that TSLA's beta is much less than 1.0 (we know that S&P 500 beta is equal to one by definition). In other words, beta tells us that TSLA is LESS volatile than the market while you clearly see in the picture that it is several times more volatile than the market (i.e. S&P 500).

Question: Suppose that Yahoo Finance is correct (and your eyes are also fine), how do you explain this discrepancy between the volatility visible on the chart and the relatively low beta given by the data providers such as Yahoo! Finance? Explain.

TSLA 318.87 AGSPC 2801.31 100.00% 75.00% 46.88% 34.64% 25.00% 0.00% lulIII Jul Sep May Sep