0
Beta measures a stock's volatility (the swings up and down in price). The market as a whole has a beta of 1.0, but each stock is determined a beta value from a history of it's stock movements. Riskiness equates to the stock losing value and high beta stocks are more prone to falling faster.
Wiki User
∙ 15y ago
Add your answer:
Earn +20 pts
Stock A has a beta equals 0.8 while stock B has a beta equals 1.6 Which one what statements is correct?
beta is a useless metric. It measures volalotilty. Which a serious investor won’t care about because it just gives them the price to buy more at a cheaper price and a investor knows the instricic value of a stock.
If a stock has a beta of 1.2 what does that mean?
If market rises by 100% then the stock rises by 120%
If the risk-free rate is .06 and expected return on the market is .13. What is the requred rate of return on a stock that has a beta of 7?
49%....in reality no stock has a beta of 7
How do you calculate beta in mutual funds?
Check out these websites: http://faculty.babson.edu/academic/Beta/CalculateBeta.htm http://www.money-zine.com/Investing/Stocks/Stock-Beta-and-Volatility/
Risk-free rate is 6 and the expected return on the market is 13 What is the required rate of return on a stock with a beta of 7?
E (return) = Rf + Beta[Rm - Rf] = 6 + (7) (13-6) = 55 %
When debt-to-equity ratio rises why does the asset beta not change?
Asset Beta measures the inherent riskiness of the underlying assets with respect to the market. The equity and debt only affect the inherent riskiness of the firm, but the additional debt has no influence on the underlying riskiness of the assets.For instance, if you are in the hotel business, why should the amount of debt you have affect your ability to get visitors stay at your hotel? high debt does, however, affect the underlying riskiness of the equity (it is riskier to hold shares of a firm with large amounts of debt). therefore, the equity beta does change.
What is a BETA number?
A beta number is a calculayion that helps to measure the level of risk in investing a stock by comparing its growth with that of the overall market.
How can you measure volatility using beta?
You can use Beta to measure market volatility because of beta is the elasticity of a stock change as a result of a change in the market. That is, Beta of a sotck is found by comparing the senstivity of a stock's return to the fluctuations in the market.Beta is found by dividing the product of the covwariances of the stock and market retun by the variance of the market.The bench marks of betas are as followed:a risk free investment such as a Tbill (that is guaranteed a return) will have a beta of 0.A portfolio with risk equivalent to the market has a beta of 1.Given those two bench mark, you can gauge at the volatility of the stock/investment by comparing its beta with those two extremes.
Stock A has a beta equals 0.8 while stock B has a beta equals 1.6 Which one what statements is correct?
beta is a useless metric. It measures volalotilty. Which a serious investor won’t care about because it just gives them the price to buy more at a cheaper price and a investor knows the instricic value of a stock.
Is the beta of a stock static or dynamic?
The Beta of a stock is always dynamic.
What does BETA indicate?
Beta is a measure of a stock's volatility. The price of a stock with a beta of 1.0 rises and falls on average with the overall market. A beta greater than 1.0 could mean larger prices fluctuations, and a beta of less than 1.0 indicates a more tame stock. For example, if Company A has a beta of 1.2 and the market goes up 10% in a given period of time then Company A should increase about 12% in value. If the market falls 20% then Company A's stock price should drop 24%.
What would make a firm's beta increase?
The beta of a firm's stock is dependent on the volatility of the stock relative to the overall market. So if the stock's volatility increased relative to the overall market, it's beta would increase as well.
Why should investors use beta?
IN THE FIELD of investing, the term the 'beta' of a stock or share is an indicator of the movement of that stock's share price in relationship to the movement of share prices in the market as a whole. It is a comparative measure of an individual stock's past price volatility.If a particular stock has a beta of 1 this means that the movement of its price has exactly matched the general movement of all prices in the market, i.e. there was an extremely close relationship with percentage value movements of the stock and that of the market.But if a stock has a beta of 0 (zero), the movement of its price in the market has been seen to be the opposite to that of the general movement of prices in general in the market as a whole.Therefore investors should give careful attention to the beta of a stock they are considering investing in.ALTHOUGH the past is no sure guide to the future, market analysis attempts to spot trends -in the hope that, just maybe, the past IS a guide to the future!Based on the assumption that a stock's beta (of past performance) is a good guide to its potential future performance, an investor who wants to 'run with the market' might choose a stock with the highest beta, i.e. the closer to 1 the better. They therefore expect, based on the past, that the stock's price will correspondingly rise when general market prices rise. On the other hand, the investor must expect the stock's price to fall when general market fall, and by a similar percentage.But a stock with a beta of 0 (zero) closely counter-matches the market, and when markets have fallen, the beta 0 stock has risen by the same percentage, and when markets have risen, the beta 0 stock has fallen by a similar percentage.AN INVESTOR who wants to 'beat the market', especially in a falling market economy, will look for stocks with low betas, but of course, they also run the risk of their stock losing value when the market is rising!An investor who wants to take a more cautious/conservative approach, the middle-way, may choose a stock that falls partway between (a) 'responding with the market, one way or another!, and (b) being 'independent of the market'. In this case they might select a stock with beta of 0.5 which might better suit their expectations and attitude to risk.MORE INFORMATION: CALCULATING THE BETAThe beta is computed using regression analysis. In our simple examples we have basically compared a beta of 1 with a beta of 0. However, if a stock's price responds with the market but shows co-related increases/falls that are actually 50% greater than that of the market, they will have a beta of 1.5And if the stock still rises and falls with the market but its percentage increases and falls are double that of the market, it will have a beta of 2.CONCLUSIONYou can see, then, that the beta is a very interesting and important measure of a stock's past performance (in 'price' terms) in relationship with the stock market as a whole. But is the past a good guide to the future? It seems that the jury is still out on that one!For more information, see Related links below.
If a stock has a beta equal to one?
A beta of 1 indicates that the security's price will move with the market.
Where and how do you get beta values for Indian companies?
Look up Bombay Stock Exchange www.bseindia.com and Nantional Stock Exchange www.nseindia.com for beta values of Indian companies.
If a stock has a beta of 1.2 what does that mean?
If market rises by 100% then the stock rises by 120%
2 Scenarios If market return is 5 percent stock's expected return is -2 percent If market return is 25 percent expected return is 38 percent What is its beta?
The beta is the relationship of a stock's expected return to the broad market's return. A "high beta" stock will have a beta over 1.00, and thus move up more than the market when the market is advancing, and decline more than the market when the market is declining. A "low beta" stock will decline less than the market, or advance less than the market, depending. The problem with beta is that it assumes a linear relationship, and what you describe here clearly is not. Your stock falls when the market rises a little, and rises more than the market when the market is advancing. To calculate beta, you should look at a longer term analysis of your stock and the market -- say, weekly observations over a year. Most betas are calculated using this length of data. But check formulas -- many different ones are out there. Also remember that beta is only one measure of a stock's performance. Alpha is the performance of a stock that cannot be explained by its beta and the broad market movement. And of course, all of this is a "hypothesis" of market behavior which is useful in understanding broad actions, but very weak in predicting individual stock behavior.
