Difference between revisions of "Beta"
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| − | Beta | + | The '''''Beta''''' measures the amount that investors expect the stock price to change for each additional 1% change in the market. The average beta of all stocks is 1.0. A stock with a beta lower than 1.0 is unusually insensitive to market movements. A stock with a beta > 1.0 is above average sensitive to market movements. |
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| + | The formula for beta is: | ||
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| + | <math>\beta_i</math> = <math>\frac{\sigma_{im}}{\sigma^2_i}</math> | ||
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| + | Where <math>\sigma_{im}</math> is the [[Covariance|Covariance]]@math between the stocks returns and the market returns and <math>{\sigma^2_i}</math> is the variance of returns in the market. | ||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:23, 27 August 2020
The Beta measures the amount that investors expect the stock price to change for each additional 1% change in the market. The average beta of all stocks is 1.0. A stock with a beta lower than 1.0 is unusually insensitive to market movements. A stock with a beta > 1.0 is above average sensitive to market movements.
The formula for beta is:
=
Where is the Covariance@math between the stocks returns and the market returns and is the variance of returns in the market.
