What is beta and how is it used?

Question

Accepted Answer

Beta is a measure of a stock's volatility in relation to the overall market. It is used to assess risk and determine potential returns.

Beta measures the sensitivity of a stock's price movement to changes in the market.
A beta of 1 indicates that the stock tends to move in line with the market.
A beta greater than 1 suggests the stock is more volatile than the market.
A beta less than 1 indicates the stock is less volatile than the market.
Investors use beta to assess the risk associated with a particular stock or portfolio.
Beta helps investors determine the potential returns of an investment based on its volatility.
For example, if a stock has a beta of 1.5, it is expected to move 50% more than the market.
If a stock has a beta of 0.8, it is expected to be 20% less volatile than the market.

Accepted Answer

Beta is the key factor used in the Capital Asset Price Model (CAPM) which is a model that measures the return of a stock. The volatility of the stock and systematic risk can be judged by calculating beta.

What is beta and how is it used?

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