[b]What is Beta Value of Stocks?
The market volatility is taken as 1, and beta values of a stock are calculated as a measure of how much the stock price moved from this market volatility.
Beta value of a stock can take one of the following forms.
- Negative Beta – This is a rarity, and means the stock is moving just reverse to the market.
- Zero (0) Beta – This means the value of the stock stays same irrespective of market movement. Again a rarity.
between 0 and 1 – This means the stock price swing less compared to
market movements. Many blue chip company stocks and high-liquidity
stocks have beta less than one. In a long-term prospective these stocks
fall under low-risk low-profit category.
- Beta of 1 – This means
the stock price moves in the same relation with the market. This can be
the case with many index-related products.
- Beta greater than 1 –
This means the stock price swings more compared to market movements.
Many growing companies and technology companies have beta greater than
one. Most of these stocks fall under high-return high-risk category.
Also remember, beta at very high levels probably indicates high price
volatility because of low-liquidity.