Beta
Beta is a measure of a stock’s volatility in comparison to the overall market. It is used to gauge the tendency of a stock’s returns to respond to swings in the market. A stock with a beta of 1 is expected to move with the market. A stock with a beta of less than 1 is expected to be less volatile than the market, while a stock with a beta of more than 1 is expected to be more volatile than the market. Beta is an important measure for investors to consider when making investment decisions.
History of Beta
Beta was first introduced by financial theorist Harry Markowitz in 1952. Markowitz developed the concept of modern portfolio theory, which states that investors should diversify their portfolios to maximize returns while minimizing risk. Beta was used as a measure of risk in Markowitz’s theory, as it measures the volatility of a stock relative to the overall market. Since then, beta has become an important measure for investors to consider when making investment decisions.
Comparison Table
| Stock | Beta |
|---|---|
| Apple | 1.17 |
| Microsoft | 1.09 |
| Amazon | 1.45 |
| 1.25 |
Summary
Beta is a measure of a stock’s volatility in comparison to the overall market. It is used to gauge the tendency of a stock’s returns to respond to swings in the market. Beta was first introduced by financial theorist Harry Markowitz in 1952 and has since become an important measure for investors to consider when making investment decisions. For more information about beta, investors can visit websites such as Investopedia, Yahoo Finance, and Bloomberg.
See Also
- Modern Portfolio Theory
- Volatility
- Risk
- Alpha
- Sharpe Ratio
- Standard Deviation
- Correlation
- Covariance
- Market Risk Premium
- Treynor Ratio
