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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 BETA
The 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 1.5
And 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.
CONCLUSION
You 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.
What else can I help you with?
What is a beta coefficient?
A beta coefficient measures the sensitivity of an asset's returns to the returns of a benchmark, typically a market index. In finance, it indicates how much an asset's price is expected to change in relation to a 1% change in the benchmark. A beta greater than 1 suggests higher volatility and risk compared to the market, while a beta less than 1 indicates lower volatility. Investors use beta to assess the risk profile of investments and to make informed portfolio decisions.
Can you use halo reach beta codes after the beta?
yes and no?
What kind of material should you NOT use to shield against beta radiation?
Materials that should not be used to shield against beta radiation include materials with low atomic numbers, such as plastic or wood, as they are not dense enough to effectively stop beta particles. Materials with higher atomic numbers, such as lead or dense metals, are more effective for shielding against beta radiation.
What is A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio It is this aspect of portfolios that allows investors to combine stocks?
Beta.
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.
What is the meaning of beta in Malay?
When you talk to the king we must use the word beta
What are the potential benefits and risks associated with investing in high beta fusion technologies?
Investing in high beta fusion technologies can offer potential benefits such as high returns and advancements in clean energy. However, there are risks involved, including technological challenges, regulatory hurdles, and market volatility. Investors should carefully consider these factors before making investment decisions.
The beta of nifty is?
The beta of Nifty, which represents the performance of the NSE Nifty 50 Index, will depend on various factors such as market conditions, current economic environment, and individual stock composition. It is a measure of the index's volatility relative to the overall market. Investors can calculate the beta of Nifty using historical price data.
Where should I include Phi Beta Kappa on my resume?
You should include Phi Beta Kappa under the "Honors and Awards" section of your resume.
Can you use Albuterol with metoprolol?
It shouldn't be because beta blockers can have the effect of bronchoconstriction which should be avoided in a person who is already prone to that problem.
How do you become a beta on Club Penguin?
To become a beta you can to it fair and square or use the beta hacker or penguin inpact!! Im not sure if they are safe though>_<
What is beta in medical terms?
Some health care providers use the term "beta" to signify a beta-hcg level (blood pregnancy test).
