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If the stock market went up 10% today what would be the impact on stock A...

If the stock market went up 10% today what would be the impact on stock A with a beta of 1.1 and stock B with a beta of .65?
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Answer #1

Beta is a statistical measure which measures the fluctuation of stock to change in overall market.

A beta less than 1 means , the stock is less volatile to overall market , a beta greater than 1 indicates the stock is more volatile than market and both are highly correlated.if the beta in negative numbers that is negatively correlated.

In the given case stock A beta =1.1 , this means the stock is 1.1 times volatile to market

Stock market went up 10%

Impact on stock A = 1.1×10=11% (increase)

Stock B beta =0.65 , this means the stock is 0.65 times less volatile to market.

This means the stock is 0.65×10=6.5% (increase). Lower increase Because of low beta.

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