Stock Beta Calculation

Stock Beta Calculation

Stock beta calculation is very important when investing in stocks, the stock beta calculation shows the expected return of a stock or the portfolio to the return of the market as a whole. Is the stock beta calculation is 0 that means the stock price is not correlated with the market at all and that asset is independent. If the stock beta calculation is positive it means the stock generally follows the market and if the stock beta calculation is negative it generally inversely follows the market. The stock beta coefficient is key, it measures the stocks variance. Stock beta calculation is also used to determine which investments are more risky compared to others in your portfolio and then you can be compared to the market as a whole. When using the stock beta calculation normally it is compared to the S&P 500 as a benchmark. The S&P 500 provides a great benchmark due to the diverse stocks which makes it up. If a stock has a beta calculation of 1.0 it moves with the market and a stock that has a beta calculation of 2 means it generally moves twice as much but not always. This can be in a positive or negative way. A higher stock beta calculation means the stock is more risky and more volatile which can mean higher returns. Stock beta calculation is used more with institutions or high net worth individuals that have a greater portfolio and want to see which investments are more risky and how to diversify their portfolio.