Mar 23 2011

What is a financial beta?

Category: Finance

Answer:

The term Beta, in finance, is a measure of volatility that compares a stock or portfolio to the rate of return of a specific benchmark. It is essentially a measure of risk that is often compared to the financial market as a whole. The term Beta is often used in the CAPM or Capital Asset Pricing Model, which is a model used to determine the expected or required rate of return of an asset.

  • A beta = 1 indicates that the asset’s price will move with the market.
  • A beta < 1 indicates that an asset will be less volatile than the market.
  • A beta > 1 indicates that the asset’s price will be more volatile than the market.
  • A beta = 0 indicates that the asset will move in conjunction with the market.

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