Stocks and the Beta Coefficient

The Beta Coefficient is a means of measuring the volatility of a security or of an investing portfolio of securities in comparison with the market as a whole.

In other words, Beta is the sensitivity of a stock's returns to the returns on some market index.

Beta is calculated using regression analysis. A Beta of 1 indicates that the security's price will move with the market.

86520808

A Beta greater than 1 indicates that the security's price will be more volatile than the market and finally, a Beta less than 1 means that it will be less volatile than the market.

Beta values can be roughly characterized as follows:

* b Less than 0:

Negative Beta is possible but not likely. People thought gold stocks should have negative Betas but that hasn't been true.

* b Equal to 0:

Cash under your mattress, assuming no inflation!

* Beta Between 0 and 1:

Low-volatility investments (e.g., utility stocks).

* b Equal to 1:

Matching the index.

* b Greater than 1:

Anything more volatile than the index.

* b Much Greater than 1:

Impossible, because the stock would be expected to go to zero on any market decline.

Most new high-tech stocks have a Beta greater than one, they offer a higher rate of return but they are also very risky.

The Beta is a good indicator of how risky a stock is.

The more risky a stock is, the more its Beta moves upward. A low-Beta stock will protect you in a general downturn.

700468 131929827847258 Erik van Dijk

That's how it is supposed to work, anyway!

Unfortunately, past behavior offers no guarantees about the future. Therefore, if a company's prospects change for better or worse, then its Beta is likely to change, too.

So, be extremely cautious and use the Beta Coefficient only as a guide to a stock's tendencies ...

Not as a crystal ball!

Κατεβάστε δωρεάν την εφαρμογή "Charami SA" στο κινητό σας και πάντοτε θα έχετε άμεση και επίκαιρη ενημέρωση για όλα τα θέματα του κλάδου της υγείας, της ομορφιάς και της ευεξίας. Επιλέξτε το αντίστοιχο με τα ενδιαφέροντά σας "κουμπί" και περιηγηθείτε στο περιεχόμενό του!

By using this site you agree to our use of cookies.