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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 quantity. 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.
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 ...
β, Beta, is the measure of asset sensitivity to a movement in the overall market; Beta is usually found via regression on historical data. Betas exceeding one signify more than average "riskiness" in the sense of the asset's contribution to overall portfolio risk; betas below one indicate a lower than average risk contribution.
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 ...
However, some firms are more sensitive to these factors than others, and this firm-specific variance is typically denoted by its beta (β), which measures its variance compared to the market for one or more economic factors. Covariance among securities result from differing responses to macroeconomic factors.
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
The Arrow–Pratt measure of relative risk aversion (RRA) or coefficient of relative risk aversion is defined as [11] = = ″ ′ (). Unlike ARA whose units are in $ −1, RRA is a dimensionless quantity, which
The beta of a security is the measure of a security's volatility relative to the broader market to understand its historical share price movement compared to the market. [12] If the beta of a stock is 1.0 then a 10% increase in the market will translate to a 10% increase in stock price.