More one reads about the financial market, the deeper you go, the more you get to explore.
Beta is one of the most common financial term and measure, which every analyst uses while doing stock analysis or market analysis.
Beta is a measure of risk; it is also termed as systematic risk as well as performance measure. Beta represents the way stock or the asset class responds to the swings in the market. It shows how the prices move in relation to the market movement.
First understand the calculation of Beta.
Beta is calculated by dividing the covariance of Security’s and benchmark’s return by variance of the benchmark’s return. Benchmark could be anything, but usually it is taken as overall market.

Interpreting BETA
Market is assumed to have Beta 1.
If any stock has a beta of 1, it means it perfectly copies the movement of the market. Let say if market rise by 1%, proportionately stock will also rise by 1%. It also means the stocks volatility matches with market volatility.

If beta is above one says, it is 1.3, then the stock is reportedly have high volatility than the market. To be precise, the stock will have 30% higher volatility than the market.

If the beta is less than one, the stock has lesser volatility than the market. We can also say that the stock with less than 1 beta is not highly affected by market adversities. Mostly the treasury bills have lower beta, as they are not much affected by market movement as they are controlled and regulated by financial institution of the country and are being backed by the government.

If BETA is negative, it means, that the stock or your asset moves in opposite direction from the market’s move.
If BETA is 0, that doesn’t make the stock risk free, it just it doesn’t share any correlation with market. So the stock will pave its own path and will not follow the market’s movement.

Anyone seeking higher return shouldn’t go for with lower BETA, as lower beta means less volatility less risk thus lesser return. It just the simple fund of higher the risk higher the return, then lower the risk lower return.

Uses of BETA
Beta as a financial concept is being used by portfolio managers, hedge…

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