What is Beta in stock markets?

Beta refers to the measure of fluctuations in a stock, volatility, risk or even a portfolio of the whole market as a whole. It is thus responsiveness of the price of a stock to the changes observed in the stock market. It is also called Beta Coefficient and is generally computed using regression analysis. It is also used in CAPM or Capital Asset Pricing Model which calculates the expected return of an asset.

E.g. when a benchmark index like Nifty is compared to returns of a particular stock, a pattern is formed which shows openness of a stock to the market risk. It is of great help for any investment decision. Thus, the value of beta 1.4 will mean the stock is 40% more volatile than the market. It is by multiplying the beta value of a stock with the movement of the index, one can determine the expected change in the value of the stock. E.g. if the beta value is 1.4 and the expected movement of the market is 10%, then it should be expected that the stock should move up by 14%.

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