What does beta mean in finance?

Beta is a way of measuring a stock’s volatility compared with the overall market’s volatility. The market as a whole has a beta of 1. Stocks with a value greater than 1 are more volatile than the market (meaning they will generally go up more than the market goes up, and go down more than the market goes down).

What is beta in CAPM?

Beta is the standard CAPM measure of systematic risk. It gauges the tendency of the return of a security to move in parallel with the return of the stock market as a whole. One way to think of beta is as a gauge of a security’s volatility relative to the market’s volatility.

How do you calculate beta in finance?

Beta could be calculated by first dividing the security’s standard deviation of returns by the benchmark’s standard deviation of returns. The resulting value is multiplied by the correlation of the security’s returns and the benchmark’s returns.

What is the symbol for beta in finance?

The beta (β) of an investment security (i.e., a stock) is a measurement of its volatility of returns relative to the entire market.

What are alphas in finance?

Alpha (α) is a term used in investing to describe an investment strategy’s ability to beat the market, or its “edge.” Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that …

What is beta in WACC?

Beta is critical to WACC calculations, where it helps ‘weight’ the cost of equity by accounting for risk. WACC is calculated as: WACC = (weight of equity) x (cost of equity) + (weight of debt) x (cost of debt).

What does a beta of 0.5 mean?

If a stock had a beta of 0.5, we would expect it to be half as volatile as the market: A market return of 10% would mean a 5% gain for the company. Here is a basic guide to beta levels: Negative beta: A beta less than 0, which would indicate an inverse relation to the market, is possible but highly unlikely.

What is a beta value?

Definition: Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. Description: Beta measures the responsiveness of a stock’s price to changes in the overall stock market.

What is stock beta and alpha?

Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.