D. Jewel, Assistant Manager, MA in English, California
Answered Oct 16, 2019
The beta of an asset refers to a type of analysis that is conducted in order to figure out the volatility of an asset by determining how it behaves around the beta of the overall market. What determines the stocks of an individual is the degree to which they deviate from the beta value of the market, and this usually stands at 1.0. If a stock goes up and has a value higher than the beta of the overall market, which is always 1.0, then the implication is that you should expect more risks around the stock. But the good news is that you should equally expect more profit or huge returns on it. On the other way round, if the beta of a stock is less than the beta of the overall market, it means you should not expect more risks around it, but the implication is that your returns on it will be minimal.
The beta of an asset is a bit complex to explain and also to understand. It’s also called the beta coefficient. A beta is the term used to measure the unpredictability associated with a stock or stock portfolio when compared to a relevant benchmark. It can be calculated different ways because the calculation uses different variables. It is a fairly sophisticated mathematical equation.
Stock market investors either rely on betas provided by online brokers, or if they’re knowledgeable enough, they calculate their own betas using software programs such Microsoft Excel or Apache OpenOffice Calc. The advance of calculating your own beta is that the variables used can be more specific to your own individual situation.