What does a stock's beta signify?
-Rohit Raj
Beta is a measure of a stock's price volatility in relation to the rest of the market. Basically it measures a stock`s riskiness. The price of a stock whose beta is one fluctuates by the same quantum as the market at large. Stocks that have a beta greater than one witness greater price volatility than the overall market and are hence viewed as being more risky. On the other hand, a stock with a beta of less than one has less price volatility than the market at large and is regarded as being less risky. Beta is one of the important parameters for judging a stock. However, one cannot choose a stock based solely on its beta. Other parameters such as earnings per share, PE ratio, PEG ratio and so on should also be taken into account. In addition to these quantitative parameters, a qualitative assessment of the stock`s prospects should also be done.
This article was originally published on October 26, 2010.
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