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It refers to an asset's non-diversifiable risk, systematic risk, or market risk. Beta is not a measure of idiosyncratic risk. Beta is the hedge ratio of an investment with respect to the stock market. For example, to hedge out the market-risk of a stock with a market beta of 2.0, an investor would short $2,000 in the stock market for every ...
Beta helps investors understand the systematic risk of a stock and its potential reaction to market changes. If the beta score exceeds 1, it implies a higher level of volatility, whereas a beta ...
For example, if the market is making a big move 20% higher, a stock with a beta of 1.5 will tend to trade up 30%. In this way, an investor can maximize gains in a bullish market by picking up ...
Understanding beta involves breaking down the component parts of a stock's return. One part, called alpha, represents the return that's completely independent of the stock market.
These equations show that the stock return is influenced by the market (beta), has a firm specific expected value (alpha) and firm-specific unexpected component (residual). Each stock's performance is in relation to the performance of a market index (such as the All Ordinaries). Security analysts often use the SIM for such functions as ...
In investing, downside beta is the beta that measures a stock's association with the overall stock market only on days when the market’s return is negative.Downside beta was first proposed by Roy 1952 [1] and then popularized in an investment book by Markowitz (1959).
Beta measures how volatile a stock is in relation to the broader stock market over time. A stock with a high beta indicates it's more volatile than the overall market and can react with dramatic ...
This is an example of a stock market anomaly since it contradicts the central prediction of many financial theories that higher returns can only be achieved by taking more risk. The capital asset pricing model (CAPM) predicts a positive and linear relation between the systematic risk exposure of a security (its beta) and its expected future return.