What is Beta?
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Thread: What is Beta?

  1. #1
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    What is Beta?

    Can someone explain? I've tried to research it but it doesn't make sense to me.
    Thx


  2. #2
    Senior Member HaroldCrump's Avatar
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    Starter definition here:
    http://www.investopedia.com/terms/b/...#axzz1qLAv8AqQ

    Can you be more specific what does not make sense to you?
    Perhaps someone can explain that particular aspect.

  3. #3
    Senior Member leoc2's Avatar
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    Last edited by leoc2; 2012-03-27 at 01:56 PM.

  4. #4
    Senior Member Ethan's Avatar
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    Beta measures the correlation between a security and a benchmark index. For Canadian stocks, this typically involves measuring how closely the movement in the share price mirrors the TSX. A beta of 1.0 implies that the stock is perfectly correlated with the TSX, ie if the TSX goes up 1% the stock will also go up 1%. Conversely if the TSX were to decline 1%, the stock would decline 1%. A beta of 10 means that for every 1% increase in the TSX, your security should increase 10%. A beta of -1.0 means that for every 1% gain in the TSX, your security should decrease 1%.

    Beta is used in several instances. Some people use it as a measure of risk, ie the lower the beta the less volatile and therefore less risky the security. Others choose to invest in high beta stocks in bull markets, and conversely low or negative beta stocks in bear markets.

    Like any other measure, beta should not be viewed in isolation. R-squared measures the percentage of a securities movement that can be attributed to changes in the index. If r-squared is under 70, beta isn't particularly useful for that security.

  5. #5
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    Quote Originally Posted by Ethan View Post
    if the TSX goes up 1% the stock will also go up 1%. Conversely if the TSX were to decline 1%, the stock would decline 1%. A beta of 10 means that for every 1% increase in the TSX, your security should increase 10%. A beta of -1.0 means that for every 1% gain in the TSX, your security should decrease 1%..
    Awesome, thats kind of the info I was after. I knew it was a unit of measurement but didn't quite understand. I don't find that alot of the stocks I'm interested in have a beta published - where can I find that?

  6. #6
    Senior Member Ethan's Avatar
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    Quote Originally Posted by NicW11 View Post
    Awesome, thats kind of the info I was after. I knew it was a unit of measurement but didn't quite understand. I don't find that alot of the stocks I'm interested in have a beta published - where can I find that?
    Google Finance publishes beta, although I don't know how accurate it is. I don't know where you could find r-squared, I've only ever seen r-squared values on a bloomberg terminal.


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