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In finance, the beta (β or market beta or beta coefficient) is a statistic that measures the expected increase or decrease of an individual stock price in proportion to movements of the stock market as a whole. Beta can be used to indicate the contribution of an individual asset to the market risk of a portfolio when it is
Using beta to evaluate a stock’s risk. Beta allows for a good comparison between an individual stock and a market-tracking index fund, but it doesn’t offer a complete portrait of a stock’s ...
: the risk-free rate of return, and: the beta of the portfolio. ε i,t : the non-systematic or diversifiable, non-market or idiosyncratic risk; It can be shown that in an efficient market, the expected value of the alpha coefficient is zero. Therefore, the alpha coefficient indicates how an investment has performed after accounting for the risk ...
Beta is an important measure of one type of risk, but it doesn’t encapsulate all of a stock’s risk. Stocks are shares of real-life businesses , which subjects them to the economic fortunes of ...
The following calculation is then applied to return the beta coefficient of company A. Unlevered Beta of B = Equity Beta of B / (1 + DE B × (1 − Tax Rate B)) Equity Beta A = Unlevered Beta of B × (1 + DE A × (1 − Tax Rate A)) where DE A and DE B are the debt to equity ratios of company A and B respectively. [3]
Yahoo! Finance uses 5-year expected growth rate and a P/E based on the EPS estimate for the current fiscal year for calculating PEG (PEG for IBM is 1.26 on Aug 9, 2008 [3]). The NASDAQ web-site uses the forecast growth rate (based on the consensus of professional analysts) and forecast earnings over the next 12 months.
In mathematical finance, multiple factor models are asset pricing models that can be used to estimate the discount rate for the valuation of financial assets; they may in turn be used to manage portfolio risk. They are generally extensions of the single-factor capital asset pricing model (CAPM).
For an investment that involves risk to be worthwhile, its returns must be higher than a risk-free investment. The risk is related to volatility. A measure of the factors influencing an investment's volatility is the beta. The beta is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors.