Beta

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Beta

The measure of an asset's risk in relation to the market (for example, the S&P500) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock's excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).] According to asset pricing theory, beta represents the type of risk, systematic risk, that cannot be diversified away. When using beta, there are a number of issues that you need to be aware of: (1) betas may change through time; (2) betas may be different depending on the direction of the market (i.e. betas may be greater for down moves in the market rather than up moves); (3) the estimated beta will be biased if the security does not frequently trade; (4) the beta is not necessarily a complete measure of risk (you may need multiple betas). Also, note that the beta is a measure of co-movement, not volatility. It is possible for a security to have a zero beta and higher volatility than the market.

Beta

A measure of a security's or portfolio's volatility. A beta of 1 means that the security or portfolio is neither more nor less volatile or risky than the wider market. A beta of more than 1 indicates greater volatility and a beta of less than 1 indicates less. Beta is an important component of the Capital Asset Pricing Model, which attempts to use volatility and risk to estimate expected returns.

beta

A mathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of return on the market as a whole. A high beta (greater than 1.0) indicates moderate or high price volatility. A beta of 1.5 forecasts a 1.5% change in the return on an asset for every 1% change in the return on the market. High-beta stocks are best to own in a strong bull market but are worst to own in a bear market. See also alpha, capital-asset pricing model, characteristic line, portfolio beta.

Beta.

Beta is a measure of an investment's relative volatility. The higher the beta, the more sharply the value of the investment can be expected to fluctuate in relation to a market index.

For example, Standard & Poor's 500 Index (S&P 500) has a beta coefficient (or base) of 1. That means if the S&P 500 moves 2% in either direction, a stock with a beta of 1 would also move 2%.

Under the same market conditions, however, a stock with a beta of 1.5 would move 3% (2% increase x 1.5 beta = 0.03, or 3%). But a stock with a beta lower than 1 would be expected to be more stable in price and move less. Betas as low as 0.5 and as high as 4 are fairly common, depending on the sector and size of the company.

However, in recent years, there has been a lively debate about the validity of assigning and using a beta value as an accurate predictor of stock performance.

References in periodicals archive ?
Bioactive inhibin contains an alpha and a beta subunit. Two forms of inhibin, inhibin A and inhibin B, along with molecular precursors and free subunits, are present in the circulation.
The effects of FSH on ovarian follicular development and growth have given rise to the hypothesis that FSH functions to enhance laying performance, or egg production, in the chicken, but the beta subunits of FSH vary in different species.
Expression of biologically active fusion genes encoding the common alpha subunit and the follicle-stimulating hormone beta subunit. Role of a linker sequence.
Endometrial adenocarcinoma associated with elevated serum concentrations of the free beta subunit of human chorionic gonadotropin.
The increase in bladder carcinoma cell population induced by the free beta subunit of human chorionic gonadotrophin is a result of an anti-apoptosis effect and not cell proliferation.
These hormones are heterodimeric, sharing a common alpha subunit but each having a unique beta subunit structure that confers hormone specificity.
Detection of the free beta subunit of human chorionic gonadotropin (HCG) in cultures of normal and malignant trophoblast cells, pregnancy sera, and sera of patients with choriocarcinoma.
The free beta subunit (hCG[beta]) consists of a 22-kDa polypeptide containing 145 amino acid residues, with two N-linked and four O-linked carbohydrate chains.
Two of these genes, CNGA3 and CNGB3, encode the alpha and beta subunits, respectively, of an ion channel that is essential for proper function of cone cells within the retina.
Molecular evolution of integrins: genes encoding integrin beta subunits from a coral and a sponge.