Why do analysts unlever beta?

Unlevering beta is a process used to isolate the business risk of a firm from the effects of its financial structure. Analysts aim to understand a company's inherent risk, which is reflected in its operations, independent of how it is financed. By removing the impact of debt on beta, analysts can get a clearer picture of the company's risk profile as it relates to its business operations alone.

This understanding is crucial when comparing companies in the same industry, as it allows for a more apples-to-apples comparison, stripping away the distortions that financial leverage can introduce. Thus, unlevered beta serves as a more accurate measure for evaluating the volatility or risk related to the company's core activities, guiding investment decisions based on operational performance rather than capital structure influences.