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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 $1,000 invested in the stock. Thus insured, movements of the overall stock market no longer influence the combined position on ...
By definition, the market as a whole has a beta of 1, and everything else is defined in relation to that: ... targeting high-beta stocks for potentially higher returns with more risk, or low-beta ...
The average investor may not be familiar with what beta means, but they are no doubt fully aware of what it represents. Although there are different types of risk in the market, a stock's beta...
High beta stocks are a favorite of many investors who aren't afraid of taking big risks in order to earn jaw-dropping returns. So what exactly are high.
Stock market indices are frequently used as local proxies for the market—and in that case (by definition) have a beta of one. An investor in a large, diversified portfolio (such as a mutual fund designed to track the total market), therefore, expects performance in line with the market.
In the stock market the risk premium is the expected return of a company stock, a group of company stocks, or a portfolio of all stock market company stocks, minus the risk-free rate. [6] The return from equity is the sum of the dividend yield and capital gains and the risk free rate can be a treasury bond yield. [7]
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 ...
Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.An alpha of 1% means the investment's return on investment over a selected period of time was 1% better than the market during that same period; a negative alpha means the investment underperformed the market.