A -10.0% Return at Berkshire Hathaway Exposes a Weak 0.45 Sharpe Ratio

BRK-B

Downside capture of 72% combined with significant sector underperformance suggests the conglomerate is failing to provide its traditional market hedge.

Returns & Risk Profile • 2026-04-11

1

Returns Overview

Period returns, alpha, cumulative performance, distributions

2

Volatility Analysis

Annualized volatility, downside deviation, drawdowns

3

Beta & Correlation

Trailing, upside, downside beta, systematic risk

4

Risk-Adjusted Returns

Sharpe, Sortino, Calmar, Information, Treynor

5

Market Regime Analysis

Bull/bear behavior, capture ratios

6

Investment Highlights & Risk Summary

Executive summary, risk flags, rankings

Returns Overview

Berkshire Hathaway Inc. (BRK-B) — Return Performance

Berkshire Hathaway’s return profile is characterized by a significant divergence between long-term structural alpha and acute short-term underperformance. Over a five-year horizon, the company has delivered a cumulative return of 74.54%, generating substantial alpha of 11.5% against the S&P 500 and 22.53% against the Financial Services sector (XLF). However, the trailing 12-month period marks a sharp reversal, with a -10.0% absolute return resulting in a massive -32.41% underperformance relative to the broader market and a -15.18% lag against its sector peers. More recently, the three and six-month windows suggest a stabilization in relative value, with sector alpha (s.a) turning positive at 4.87% and 3.22% respectively, indicating the business is beginning to decouple from recent broad-market headwinds.

Period Returns vs S&P 500 & XLF

Monthly Returns Heatmap

BRK-B

The company exhibits a notable recovery in relative strength over the last three months, posting a sector alpha of 4.87% despite a flat absolute return of -0.13%. This contrasts heavily with the one-year period where the company trailed the S&P 500 by 3,241 basis points, suggesting a period of significant valuation compression relative to the broader index. The five-year cumulative outperformance of 22.53% over the XLF confirms the company’s historical capacity for alpha generation, even as its trailing 12-month performance indicates a sharp cyclical deviation.

Returns Overview

Berkshire Hathaway Inc. (BRK-B) — Return Charts

Volatility Analysis

Berkshire Hathaway Inc. (BRK-B) — Volatility Profile

Berkshire Hathaway Inc. (BRK-B) maintains a volatility profile that closely tracks the broader equity market, though it currently carries a slight risk premium with an annualized volatility of 19.22% against the S&P 500's 17.84%. This 1.38% differential suggests that while the business is often viewed as a defensive proxy, its heavy weightings in capital-intensive industries and cyclical insurance underwriting introduce moderate price variance. The company's downside deviation of 14.26% is particularly noteworthy, as it remains significantly lower than the total annualized volatility, indicating that a substantial portion of the stock's fluctuations are driven by positive price action rather than strictly negative shocks. From a structural perspective, the company's risk characteristics are defined by its massive liquidity position and diversified cash-flow streams, which historically provide a buffer during systemic downturns. However, the current data shows a marginal divergence between short-term and long-term risk regimes. As the 60-day volatility of 17.75% exceeds the 252-day average of 16.93%, investors should prepare for a period of heightened sensitivity to macroeconomic catalysts over the coming 6-18 months.

Volatility Metrics

BRK-B

The company's maximum drawdown of -29.57% during the 2020 pandemic onset illustrates its vulnerability to sudden liquidity crises, yet the recovery period of approximately eight months from the March trough to the November peak highlights a robust capacity for capital restoration. This resilience is a function of the company's 'fortress' balance sheet, which allows it to remain an aggressive liquidity provider when market volatility spikes. The current 252-day volatility of 16.93% is actually lower than the S&P 500's benchmark volatility, suggesting that over a full-year cycle, the business offers a more stabilized return profile than its short-term metrics might imply.

Annualized volatility of 19.22% represents a 7.7% volatility premium relative to the S&P 500, indicating slightly higher sensitivity to market-wide fluctuations.
The downside deviation of 14.26% suggests that the company's risk is efficiently managed, with less than 75% of total volatility attributed to negative returns.
A 60-day volatility of 17.75% vs. a 252-day volatility of 16.93% indicates a recent 4.8% increase in price variance, signaling a potential shift in the near-term risk environment.
The historical maximum drawdown of -29.57% was resolved in 238 days, demonstrating a high recovery factor and strong mean-reversion characteristics during periods of extreme stress.

Positive Characteristics
Downside deviation is significantly lower than total volatility, implying the company generates more 'upside' volatility than 'downside' risk.
Long-term 252-day volatility remains below the 20% threshold, which is a standard benchmark for institutional-grade stability.
Rapid recovery from the -29.57% peak-to-trough decline confirms the underlying fundamental strength of the company's diversified subsidiary holdings.

Volatility Analysis

Berkshire Hathaway Inc. (BRK-B) — Volatility & Drawdown Charts

Beta & Correlation

Berkshire Hathaway Inc. (BRK-B) — Beta Profile

Berkshire Hathaway Inc. (BRK-B) exhibits a risk profile that bridges the gap between a defensive utility and a broad market proxy, characterized by a trailing beta of 0.812. This metric places the company at the lower threshold of the 'market-like' volatility range (0.8 to 1.2), suggesting that while it generally tracks the S&P 500, it does so with approximately 19% less sensitivity than the benchmark. This moderated volatility is coupled with a relatively low R-squared of 0.568, indicating that only 56.8% of the stock's price action is dictated by systematic market movements, leaving a substantial 43.2% to be driven by idiosyncratic factors such as private subsidiary performance and the firm's massive cash allocation. The company’s relationship with the Financial Services sector (XLF) reveals a nuanced risk decomposition. With a sector beta of 0.749 and a higher sector correlation (0.851) compared to the market correlation (0.754), Berkshire is more closely tied to the direction of financial cycles than the general market, yet it remains less volatile than the sector itself. This divergence highlights the firm's unique structure: while it is classified as a financial entity, its vast non-financial holdings in energy, rail, and consumer goods act as a dampening mechanism against sector-specific shocks, providing investors with a diversified equity exposure within a single ticker.

Beta & Correlation Metrics

BRK-B

The risk profile of Berkshire Hathaway is defined by a highly favorable beta asymmetry, where the upside beta of 0.862 outweighs the downside beta of 0.835. For risk management purposes, this suggests that the stock historically captures roughly 86% of market rallies while only participating in 83.5% of market drawdowns, creating a 'cushioning' effect during periods of volatility. This asymmetric profile is a key indicator of quality for long-term investors, as it facilitates capital preservation without sacrificing significant participation in equity bull markets. From a diversification standpoint, the high idiosyncratic risk component (43.2%) is significant, as it means nearly half of the stock's variance is independent of the S&P 500. This is largely attributable to the company's $160B+ cash pile and its non-correlated private businesses, which allow the stock to act as a stabilizer in a broader portfolio. The fact that market beta (0.812) is higher than sector beta (0.749) confirms that the company is more sensitive to general economic health than to specific financial sector volatility, validating its role as a diversified conglomerate rather than a pure-play financial institution.

The trailing beta of 0.812 indicates a defensive-leaning market sensitivity, providing a lower-volatility alternative to the S&P 500.
A downside beta of 0.835 vs an upside beta of 0.862 demonstrates positive asymmetry, allowing the company to retain more value during market corrections.
The R-squared of 0.568 implies that 43.2% of the stock's returns are driven by company-specific variables, offering significant diversification benefits relative to high-correlation index components.
A sector beta of 0.749 relative to the XLF suggests the company is significantly less volatile than its financial peers, likely due to its diversified industrial and energy holdings.
The sector correlation of 0.851 is higher than the market correlation of 0.754, indicating that while the stock is less volatile than the sector, its direction is still primarily influenced by financial sector trends.

Positive Characteristics
Positive beta asymmetry (0.862 upside vs 0.835 downside) indicates superior risk-adjusted capture ratios.
High idiosyncratic risk component (43.2%) reduces portfolio-level systematic risk for investors already heavy in S&P 500 index funds.
Low sector beta (0.749) provides a 'low-beta' gateway to the financial services sector with reduced cyclical sensitivity.

Beta & Correlation

Berkshire Hathaway Inc. (BRK-B) — Rolling Beta

Positive Notes

Positive beta asymmetry (0.862 upside vs 0.835 downside) indicates superior risk-adjusted capture ratios.

High idiosyncratic risk component (43.2%) reduces portfolio-level systematic risk for investors already heavy in S&P 500 index funds.

Low sector beta (0.749) provides a 'low-beta' gateway to the financial services sector with reduced cyclical sensitivity.

Risk-Adjusted Returns

Berkshire Hathaway Inc. (BRK-B) — Risk-Adjusted Performance

Berkshire Hathaway Inc. currently exhibits a risk-adjusted profile characterized by moderate efficiency and superior downside protection. The company’s Sharpe Ratio of 0.448 indicates that while it is outperforming the 3.64% risk-free rate, the excess return per unit of total volatility is relatively modest compared to the historical S&P 500 benchmark of approximately 1.0. This suggests that investors are currently accepting a lower premium for the total price variability associated with the stock. However, a deeper analysis of volatility components reveals a more favorable narrative for conservative investors. The Sortino Ratio of 0.603, which is approximately 34.6% higher than the Sharpe Ratio, demonstrates that the company's price fluctuations are disproportionately skewed toward positive movements rather than harmful downside variance. This asymmetry is a key institutional strength, suggesting that the conglomerate's diverse cash-flow-producing assets provide a robust floor during market turbulence.

Risk-free rate: 3.64% (Fed Funds Rate)

Risk-Adjusted Metrics

BRK-B

Berkshire Hathaway's risk-adjusted performance is highlighted by a Treynor Ratio of 10.598, which reflects a strong return per unit of systematic risk, confirming that the company effectively leverages its market beta to generate gains above the risk-free hurdle. The Information Ratio of -0.0 indicates that the company is currently tracking its benchmark with high precision, offering zero active alpha over the measured period but maintaining stability. The Calmar Ratio of 0.414 suggests that while the company provides steady growth, the magnitude of its maximum drawdowns is significant relative to its annualized returns, requiring a longer-term horizon for capital recovery.

The Sortino Ratio of 0.603 significantly outperforms the Sharpe Ratio of 0.448, indicating that the business has successfully minimized 'bad' volatility while allowing for upside participation.
A Treynor Ratio of 10.598 suggests that for every unit of market risk (Beta) taken, the company is generating a double-digit percentage return over the 3.64% risk-free rate.
The Information Ratio of -0.0 indicates a neutral active management performance, meaning the stock is currently moving in lockstep with its risk-adjusted benchmark expectations.
A Calmar Ratio of 0.414 highlights a moderate risk-to-drawdown relationship, suggesting that the company's peak-to-trough declines are approximately 2.4 times larger than its annualized excess returns.

Positive Characteristics
Favorable downside risk profile as evidenced by the significant premium of the Sortino Ratio over the Sharpe Ratio.
Efficient utilization of systematic risk, providing a robust return profile per unit of beta.
Resilient performance relative to the 3.64% risk-free rate, maintaining positive risk-adjusted metrics across all major categories.

Risk-Adjusted Returns

Berkshire Hathaway Inc. (BRK-B) — Rolling Sharpe & Sortino

Positive Notes

Favorable downside risk profile as evidenced by the significant premium of the Sortino Ratio over the Sharpe Ratio.

Efficient utilization of systematic risk, providing a robust return profile per unit of beta.

Resilient performance relative to the 3.64% risk-free rate, maintaining positive risk-adjusted metrics across all major categories.

Market Regime Analysis

Berkshire Hathaway Inc. (BRK-B) — Regime Behavior

Berkshire Hathaway Inc. (BRK-B) exhibits a distinct all-weather profile characterized by significant capital preservation during periods of high market stress and efficient participation in upward trends. The company’s capture ratio of 1.18 indicates a favorable asymmetric return profile, where it retains 85.6% of market gains while only participating in 72.5% of market declines. This relationship suggests that the business acts as a volatility dampener for diversified portfolios, particularly during the transitions between market cycles. In the current 'Bull-HighVol' regime, the company has historically achieved its strongest performance, averaging a 2.18% monthly return over 36 months. This outperformance during volatile uptrends highlights the company's ability to navigate price dispersion and capitalize on market inefficiencies that often accompany higher realized volatility. Conversely, the company shows remarkable resilience during 'Bear-HighVol' regimes, with a marginal average decline of only 0.69%, effectively shielding investors from the brunt of systemic crises.

Current Market Regime: Bull-HighVol

Bull-LowVol = calm uptrend • Bull-HighVol = volatile uptrend • Bear-LowVol = orderly decline • Bear-HighVol = crisis

Regime Returns & Capture Ratios

BRK-B

Berkshire Hathaway demonstrates a unique 'volatility-positive' characteristic within bullish regimes, with its average monthly return accelerating from 1.54% in calm uptrends to 2.18% in volatile ones. This suggests the underlying diversified conglomerate structure and large cash positions allow the business to thrive when market participants are forced to recalibrate valuations. In bearish environments, the company's performance is highly bifurcated; while it shows significant resilience in high-volatility crises (-0.69%), it has historically struggled in rare, orderly 'Bear-LowVol' declines (-3.44%), though the limited sample size of four months for the latter suggests this may be a statistical outlier rather than a structural weakness. From a risk-adjusted perspective, the 72.5% downside capture is the defining metric for the company's defensive posture. By losing nearly 28% less than the broader market during downturns, the company significantly reduces the 'sequence of returns' risk for long-term investors. Given the current 'Bull-HighVol' regime, the business is positioned in its historically most productive environment, where its combination of insurance float reinvestment and diverse subsidiary earnings typically outpaces the broader S&P 500 on a risk-adjusted basis.

Market Regime Analysis

Berkshire Hathaway Inc. (BRK-B) — Regime & Capture Charts

Regime Timeline

The company achieves its highest average monthly returns of 2.18% during 'Bull-HighVol' regimes, suggesting it is a primary beneficiary of the current market environment.
A downside capture of 72.5% confirms the company's defensive utility, providing a 27.5% margin of safety relative to the S&P 500 during market contractions.
The capture ratio of 1.18 indicates that for every 1% of market movement, the company generates a net positive return bias over a full market cycle.
Exceptional resilience is noted in 'Bear-HighVol' regimes (crisis periods), where the company limits monthly losses to just 0.69%, significantly outperforming the broader market's typical double-digit drawdowns in such periods.
The 'Bear-LowVol' regime represents a historical soft spot with -3.44% returns, though the low frequency of this regime (4 months) limits its predictive reliability.

Positive Characteristics
Superior risk-asymmetry with an upside/downside capture ratio well above the 1.0 parity threshold.
Demonstrated crisis alpha, losing less than 1% on average during high-volatility bear markets.
Positive correlation between realized market volatility and the company's excess returns during bullish phases.

Investment Highlights & Risk Summary

Berkshire Hathaway Inc. (BRK-B) — Summary & Implications

Berkshire Hathaway Inc. (BRK-B) has recently exhibited a period of significant relative underperformance, characterized by a 1-year return of -10.0% and a substantial negative alpha of -32.41% against the S&P 500. While the broader financial sector (XLF) has fared better, the company's sector alpha of -15.18% suggests that its diversified industrial and insurance conglomerate model has decoupled from the cyclical tailwinds currently benefiting more traditional financial institutions. This performance lag represents a significant deviation from historical norms where the company's value-oriented approach often serves as a market hedge. From a risk-adjusted perspective, the company's metrics are currently compressed, with a Sharpe ratio of 0.448 and a Sortino ratio of 0.603. These figures indicate that the business has generated modest excess return per unit of total and downside risk over the trailing twelve months, significantly trailing the benchmark threshold of 1.0. However, the annualized volatility of 19.22% remains relatively contained, reflecting the inherent stability provided by its massive cash reserves and diversified subsidiary cash flows, even as the stock price faced headwinds. The most compelling aspect of the current risk profile is the favorable capture asymmetry. The company has maintained an upside capture of 85.6% while limiting downside capture to 72.5%, resulting in a capture ratio of 1.18. This suggests that while the company is currently underperforming in absolute terms, it continues to provide structural capital preservation by participating in the majority of market gains while insulating investors from nearly 30% of market declines. This characteristic is vital for long-term compounding, as it reduces the 'math of losses' required for recovery. Ultimately, Berkshire Hathaway remains a defensive core holding with an attractive beta of 0.812, making it less sensitive to market-wide systemic shocks than the average S&P 500 constituent. Investors should view the recent underperformance and -29.57% maximum drawdown not necessarily as a failure of the business model, but as a period of valuation reset or sector rotation. The company's low sector beta of 0.749 confirms its role as a diversifier within the financial services sleeve of a portfolio, rather than a proxy for the banking sector.

Summary Dashboard

Investment Highlights

Superior capture asymmetry with a downside capture ratio of only 72.5%, indicating the company effectively shields capital during market contractions better than the broader index.
A defensive market beta of 0.812 provides a 18.8% reduction in systemic risk exposure compared to a standard S&P 500 tracking portfolio.
Low sector correlation evidenced by a sector beta of 0.749 against the XLF, allowing the company to serve as a stabilizing force when pure-play financial stocks experience high volatility.
Annualized volatility of 19.22% is moderate for a large-cap equity, suggesting that despite recent negative returns, the price action remains within manageable risk parameters for institutional holders.

Risk-Return Rankings

BRK-B MODERATE

A defensive conglomerate currently experiencing a cyclical performance lag but maintaining strong structural risk-mitigation features.

Strength: Excellent downside capture ratio (72.5%) relative to the S&P 500.

Concern: Significant negative alpha (-32.41%) indicating substantial underperformance relative to the benchmark index over the last year.

Key Takeaways

The company's negative 10% return over the last year is primarily a function of relative alpha decay rather than high volatility, as evidenced by its stable 19.22% annualized vol.
A Sharpe ratio of 0.448 suggests that investors are currently receiving inadequate compensation for the risk taken, warranting a look at the underlying subsidiary performance versus the stock price.
The maximum drawdown of -29.57% highlights that even defensive stalwarts are susceptible to deep corrections during periods of shifting interest rate regimes or market sentiment.
The capture ratio of 1.18 (Upside/Downside) remains the primary quantitative justification for holding the stock, as it supports long-term wealth compounding through loss mitigation.

PORTFOLIO IMPLICATIONS

For portfolio construction, Berkshire Hathaway functions effectively as a 'low-beta' anchor within the financial sector allocation. Its low sector beta (0.749) means it provides diversification benefits for investors who are otherwise over-concentrated in high-beta banking or fintech stocks. Given the current negative alpha environment, the stock is best utilized as a capital preservation tool rather than a performance driver. Its ability to capture 85.6% of upside while only realizing 72.5% of downside makes it an ideal candidate for investors seeking to reduce their overall portfolio drawdown potential without completely exiting the equity markets. It should be paired with higher-alpha, growth-oriented assets to balance the total return profile.

BRK-B

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