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What is Beta In Stocks? How to Understand & Interpret stock Beta risks | Motilal Oswal

Hi, being in the stock market, you must have frequently heard about the beta of say, stock A is low or stock B has a high beta. So what are they actually referring to by saying this? And what is beta? Beta is a numerical value that measures the volatility of a stock as compared to the volatility of the market. It is a part of the capital asset pricing model to calculate the expected return of the stock. A theory used by many practicing analysts and investment managers when analysing a company or an investment, the stock beta is measured by analysing a stock's performance in the past, in order to evaluate how its price might move in relation to the overall market. It gives a sense of the stocks risk compared to that of the overall market investment in stocks entails risk. Every stock has two types of risks embedded in it. That is systematic risk and unsystematic risk. Systematic risk is the fluctuation in the returns of stock that occurs due to macro-economic factors. These factors could be political, social, or economic factors that affect the gender market, not just a particular industry or stock. Unsystematic risk is fluctuation in the return of a stock, a rising due to any micro economic factor. These risk factors exist within the company and can be avoided if necessary, action is taken. Beta only takes systematic risk into consideration and not the unsystematic risk because systematic risk can never be eliminated in the stock market. Different stocks have different beta, beta is also to be looked in relative terms and not in isolation to give an example, high beta stocks go up more than the index. When the overall market is bullish and go down more than the index. When the market is bearish, the market is considered as the base with a beta of one and individual stocks are measured in terms of how much they deviate from the market. We can interpret the beta of the stocks in the following ways. If the Beta value is equal to one, then it means that the stock moves hand-in-hand with the market. Adding these stocks in your portfolio may not add up much risk. If the beat of value is more than one, then it means that the stock is more volatile than the market. For example, if the beta is 1.3, then it means stock can show 30% more swing compared to the market. These are high risk and high return stocks suitable for high risk appetite investors. A Beta of greater than one is classified as an aggressive stock. If the beta value is less than one and greater than zero, then it means that the stock is less volatile than the market. And it will not fluctuate with high volatility. These stocks are less risky and suitable for low-risk appetite investors, usually risk averse investors invest in stocks with a beta of less than one, a beta of less than one is classified as a defensive stock. If the Beta value is zero, then it means that the stock is not correlated to the market. However, there are other multiple factors which also affect the stock price movement. And this is just one of the factors and perhaps one of the oldest and widely popular ones among investors. #stockbeta #betaofastock #motilaloswal #stockmarketeducation #stockmarketvideos #edumo Visit Our Website - Important Links: Motilal Oswal Home - https://www.motilaloswal.com/ Open Demat Account Online At Motilal Oswal - https://www.motilaloswal.com/open-dem... MO Indian Stock Market Live - https://www.motilaloswal.com/markets-... Motilal Oswal Equity & Derivatives - https://www.motilaloswal.com/equity-i... Motilal Oswal Commodity Trading - https://www.motilaloswal.com/invest-i... Motilal Oswal Currency Trading - https://www.motilaloswal.com/currency... Motilal Oswal Digital Gold Investment - https://www.motilaloswal.com/invest-i... MO Portfolio Management Services - https://www.motilaloswal.com/portfoli... Motilal Oswal Upcoming IPOs - https://www.motilaloswal.com/invest-i... Motilal Oswal Stock Market Apps: MO Trader App Play Store: https://play.google.com/store/apps/de... MO Investor App Play Store: https://play.google.com/store/apps/de... MO Trader IOS App Store: https://apps.apple.com/in/app/mo-trad... MO Investor IOS App Store: https://apps.apple.com/in/app/mo-inve... Motilal Oswal Social Media: Join Us On Facebook:   / motilaloswalsecurities   Follow Us On Instagram:   / motilaloswalgroup   Follow Us On Twitter:   / motilaloswalltd   Visit Us On LinkedIn:   / motilal-oswal-financial-services-ltd   YouTube Channel:    / @mofsl   Our Telegram: https://t.me/motilaloswalofficial