The beta in finance is a financial metric that measures how sensitive is the stock price concerning the change in the market price (index). The Beta is used for measuring the systematic risks associated with the specific investment.
What is a beta coefficient?
A beta coefficient can measure the volatility of an individual stock compared to the systematic risk of the entire market. In statistical terms, beta represents the slope of the line through a regression of data points. In finance, each of these data points represents an individual stock's returns against those of the market as a whole.
How does beta work?
Beta works by estimating the correlation between an asset's movement and changes in the market overall based on historical data. In doing so, it measures systematic risk — meaning risk that can't be avoided through diversification because it's not specific to a particular investment.
What does Alpha vs Beta mean?
Alpha measures an investment's returns relative to a benchmark. Beta measures an investment's volatility relative to a benchmark. R-squared measures how much an investment moves in correspondence with a benchmark. Standard deviation measures volatility based on an investment's returns.
