Understanding Beta
Beta is a term commonly used by financial consultants and economists, but what is it exactly?
Beta is a measure of the volatility of an investment in comparison to an index or benchmark. A high beta (greater than one) indicates more volatility than its index or benchmark, and a low beta (less than one) implies less volatility.
For example, a stock with a beta of 2.5 in relation to the Standard & Poor's 500 suggests that when the index rises 10%, the stock appreciates by 25%. Conversely, if the S&P falls by 10%, the stock would lose a quarter of its value.
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Beta is a measure of the volatility of an investment in comparison to an index or benchmark. A high beta (greater than one) indicates more volatility than its index or benchmark, and a low beta (less than one) implies less volatility.
For example, a stock with a beta of 2.5 in relation to the Standard & Poor's 500 suggests that when the index rises 10%, the stock appreciates by 25%. Conversely, if the S&P falls by 10%, the stock would lose a quarter of its value.
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posted by Bob Moser at
9:48 PM
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