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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 ...
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 ...
Regardless of a stock’s beta, or the overall direction of the market, if a company has financial difficulties, its stock will suffer. Companies also face many other types of risks, from the risk ...
Fama and French found 5 main factors are associated with higher returns: value stocks, size momentum, low volatility and quality (also known as dividend payers); A 6th factor, yield, is sometimes ...
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 ...
This portfolio has the same exposure to each of the macroeconomic factors as the mispriced asset. The arbitrageur creates the portfolio by identifying n correctly priced assets (one per risk-factor, plus one) and then weighting the assets such that portfolio beta per factor is the same as for the mispriced asset.
If the Beta of a stock is 1.5 then a 10% increase in the market will translate to a 15% increase in the stock price and if the beta of a stock is 0.5 a 10% market increase will translate to a 5% stock price increase and likewise with decreases in the market. This beta is generally found via statistical analysis of the share price history of a ...
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 ...