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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 added in small ...
Beta is a way of measuring a stock’s volatility compared with the overall market’s volatility. By definition, the market as a whole has a beta of 1, and everything else is defined in relation ...
By definition, the market always has a beta of 1, so betas above 1 are considered more volatile than the market, while betas below 1 are considered less volatile. ... The beta for any stock can be ...
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 ...
So long as the trading is done delta-neutral, buying an option is a bet that the underlying's future realized volatility will be high, while selling an option is a bet that future realized volatility will be low. Because of the put–call parity, it doesn't matter if the options traded are calls or puts.
The term () represents the movement of the market modified by the stock's beta, while represents the unsystematic risk of the security due to firm-specific factors. Macroeconomic events, such as changes in interest rates or the cost of labor, causes the systematic risk that affects the returns of all stocks, and the firm-specific events are the ...
Investors, whether beginner or seasoned professionals, all have a threshold for risk. Some prefer to play it safe and favor a low-risk investment plan while others are more advantageous with a ...
The beta (β) of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices , such as the S&P 500 .