a stocks beta is more relevant as a measure of risk to an investor who holds This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you What is Stock Beta – Stock Market Beta – What is Investment Beta. Following along are instructions in the video below:
This video. We look at stock beta and what is it used for i also also have a word of caution. When it comes to stock beta at the end this video.
Okay. Lets get started. What is a stock beta stock beta measures.
The movement of a stock versus that of the stock market. Another way to put it is that it measures how a stock responds to a move in the stock market. Lets look at a quick example.
We have three different stocks. Were looking at stock 1 stock. 2 and stock 3.
Stock. 1 has a beta of one.
Stock 2 has a beta of. 05. Stock.
3 has a beta of 15. So what does this mean lets imagine. The stock market moves up 10.
While stock. 1. Which has a beta of 1 should move up the same 10.
What about stock 2. Well with beta 1. Is considered the baseline.
You could look at it as a hundred percent of the move of the market will be reflected in this stock. If the stock has a beta less than 1.
It will have a less traumatic move. If this stock has a beta of more than 1. It will have a more drastic move than the stock market so back to our example.
Stock. 2 has a beta of 05. This means that it should only move half of what the stock market did or 50 which in this case would be 5.
Stock. 3 has a beta of 15. So stock.
3 will move more than the market. Did stock. 3.
Should be up 15 percent or 50 percent more than the market. Well what if the market was down 10.
Stock. 3 with a beta of 15. Should now be down 50 more than the market or 15 down.
While stock. 2. Should only be down.
5 or half of the market beta is used in a few different ways it can be used in the capital asset pricing model often called cap n to obtain the cost of equity. Ill be doing a video on cap m. At some point in the future.
Ive also seen entire portfolios designed to hold low beta stocks with the idea that they should be less volatile from the market. And in theory. More stable one word of caution stock beta is a historical measure.
Just because it has a low beta today doesnt mean it will have a low beta tomorrow. So if beta is important to your investments and it probably is keep an eye on it as it changes as market conditions change. If you have any questions about the world of investing any suggestions on videos.
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