Stock Beta

Definition:

Beta  measures a stock’s volatility versus the market’s volatility.  A stock’s volatility is calculated by comparing its return verses that of the overall market return.  If a stock’s price does not move in the same direction as the market, it has a beta of zero. A beta above zero means that the stock follows the market.  A Beta of 1 means that the stock follows the market very closely  If a stock has a negative Beta, then its price moves the opposite direction of the market.  The closer a stock is to a negative 1, the more the stock moves the opposite direction of the market.

Example Beta:

 If a stock has a Beta of 2.0, it is twice as volatile as the market.  If the S&P 500 fell by -10% in a given month, then the stock would be expected to fall around -20%. The stock would also be expected to gain more than the general market during an up market.

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