Question

“Suppose that a stock has a beta of 1.15. How do you interpret that value?

Suppose that a stock has a beta of 1.00. Can one mimic the performance of the stock market by buying shares in only that stock?

Answer 1

The stock have beta 1.15 means that it will have move on average 1.5 times the market return and it indicates that the security's price move volatile then the market .

The stock have beta means that the security's price tends to move with the market .

As in this case beta 1.15 means return of 115% and beta 1 means 100% return now beta 1,15 have high risk but also provide high rate of return and 1 beta have less risk with less return .

Now the one who have to earn more return in stock market will invest in those share who have beta 1.15 as this have high return with low risk and one who want to take less risk will invest in share having beta factor 1 to avoid risk and to earn return .

The hedging function be performed with those stocks whose beta is more then 1.