Understanding Beta and it’s relation with a stock’s risk-
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What is Beta?
Beta in finance, is a number that tells the investor/analysts how that stock behaves compared to other stocks & index like Nifty50
In other words, it gives a sense of the stock's risk compared to that of the greater market
Greek letter 'ß' represent beta.
What is Beta?
Beta in finance, is a number that tells the investor/analysts how that stock behaves compared to other stocks & index like Nifty50
In other words, it gives a sense of the stock's risk compared to that of the greater market
Greek letter 'ß' represent beta.
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How to Analyse Beta-
A beta of 1 indicates that the stocks price tends to move with the market.
A beta greater than 1 indicates that the stock price is more volatile/risky than the market.
A beta of less than 1 means it tends to be less volatile/risky than the market.
How to Analyse Beta-
A beta of 1 indicates that the stocks price tends to move with the market.
A beta greater than 1 indicates that the stock price is more volatile/risky than the market.
A beta of less than 1 means it tends to be less volatile/risky than the market.
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Example-
Say a stock has a beta of 2. This means it is two times as volatile as the greater market.
Suppose the overall market goes up by 5%. That means this stock could rise by 10%.
Likewise, if the market declines by 10%, that stock could fall down by 20%
Example-
Say a stock has a beta of 2. This means it is two times as volatile as the greater market.
Suppose the overall market goes up by 5%. That means this stock could rise by 10%.
Likewise, if the market declines by 10%, that stock could fall down by 20%
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Beta levels-
A negative beta indicates that the stock moves in the opposite direction to the overall market. This mostly happens with gold stocks as gold is inversely related to equity.
Beta of 0 means regardless of market movement, the stock value remains unchanged.
Beta levels-
A negative beta indicates that the stock moves in the opposite direction to the overall market. This mostly happens with gold stocks as gold is inversely related to equity.
Beta of 0 means regardless of market movement, the stock value remains unchanged.
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Beta between 0 - 1 means that the stock is less volatile/risky than the overall market. Utility stocks generally have beta between 0-1
Beta of 1 means the stock has the same movement as the index/market. So suppose nifty moves up by 1%, this stock will also go up by 1%
Beta between 0 - 1 means that the stock is less volatile/risky than the overall market. Utility stocks generally have beta between 0-1
Beta of 1 means the stock has the same movement as the index/market. So suppose nifty moves up by 1%, this stock will also go up by 1%
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How can you use beta to make your investment decisions?
Every investor has different risk taking ability due to various factors like income, age, retirement plans , expenses etc.
So if you want less risk, you can invest in companies with beta between 0 and 1
How can you use beta to make your investment decisions?
Every investor has different risk taking ability due to various factors like income, age, retirement plans , expenses etc.
So if you want less risk, you can invest in companies with beta between 0 and 1
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Where can you find the Beta?
Yahoo! Finance is one of the website where you can find the beta numbers of any stock you wish to invest in.
Where can you find the Beta?
Yahoo! Finance is one of the website where you can find the beta numbers of any stock you wish to invest in.
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Disadvantage of using beta-
• It only shows the historical pattern of the stock with respect to the indices. So it doesn’t take into account what can happen in the future.
• It represents systematic risk that can’t be diversified away.
Disadvantage of using beta-
• It only shows the historical pattern of the stock with respect to the indices. So it doesn’t take into account what can happen in the future.
• It represents systematic risk that can’t be diversified away.
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Do you find Beta useful while taking investment decisions?
@AvadhMaheshwar2 @caniravkaria @safiranand @kuttrapali26 @KirtanShahCFP @itsTarH @aditya_kondawar @DhanValue
Comment down below! 👇🏻
Do you find Beta useful while taking investment decisions?
@AvadhMaheshwar2 @caniravkaria @safiranand @kuttrapali26 @KirtanShahCFP @itsTarH @aditya_kondawar @DhanValue
Comment down below! 👇🏻
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