Beta is a measure of a stock’s volatility and is the number describing the relationship of the stock’s return with those of the entire financial market.
The average three-year Beta should be below 1.0
The higher the Beta, the more volatile the stock and the higher the risk is.
- Beta G.T. 1.0 the stock has a greater price validity in relation to the rest of the market.
- Beta 1.0 the stock is in line with the rest of the market
- Beta L.T. 1.0 the stock has less volatility than the rest of the market.
Example: If a stock has a Beta of 2. It means that if the market drops by 10 percent than this stock will drop by 10 percent X 2 or 20 percent.