Beta
Indicates volatility or sensitivity of an asset compared to the overall market.
Detailed Description
Beta
What does a beta value of 1 indicate?
A beta value of 1 indicates that the stock moves in line with the market.
How is beta calculated?
Beta is calculated using the formula: Beta = Covariance (Stock, Market) / Variance (Market).
What is the difference between historical beta and adjusted beta?
Historical beta is based on past price data, while adjusted beta modifies historical beta towards the market average to predict future volatility.
Why is beta important in portfolio management?
Beta helps assess the risk profile of securities and the overall portfolio, aiding in alignment with investors' risk tolerance.
What are the limitations of using beta?
Beta relies on historical data which may not predict future performance and does not account for other risk factors like credit or liquidity risk.