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What is meant by a stock’s beta?

What is meant by a stock’s beta?

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Answer #1

Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market.

Beta measures the responsiveness of a stock's price to changes in the overall stock market. On comparison of the benchmark index for e.g. S&P 500 to a particular stock returns, a pattern develops that shows the stock's openness to the market risk. This helps the investor to decide whether he wants to go for the riskier stock that is highly correlated with the market (beta above 1), or with a less volatile one (beta below 1).

For example, if a stock's beta value is 1.3, it means, theoretically this stock is 30% more volatile than the market. The beta calculation is done by regression analysis which shows security's response with that of the market.

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