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| Beta |
Beta is a measure of a stock’s price volatility relative to
the overall market. It is most often calculated using a stock's movements
relative to the S&P 500 Index over the trailing 12-month period.
A stock with a beta of 1.00 will tend to move higher and lower
in tandem with the S&P 500. Securities with a beta greater than 1.00 tend to
be more volatile than the S&P 500, and those with betas below 1.00 tend to
be less volatile than the underlying index. Securities with betas of zero
generally move independently of the overall market. And finally, stocks with
negative betas tend to move in the opposite direction relative to the broader
market. When the S&P tumbles, stocks with negative betas will move higher,
and vice versa.
For example:
|
Beta |
Volatility vs. S&P 500 |
Description |
| 2.50 |
150% |
A beta of 2.50 represents stock price
movement that is 150% more volatile than the S&P 500 Index. |
| 1.00 |
0% |
A beta of 1.00 represents stock price
movement that has the same volatility as the S&P 500 Index. |
| 0.50 |
50% |
A beta of 0.50 represents stock price
movement that is half as volatile as the S&P 500 Index. |
| -0.50 |
50% |
A beta of -0.50 represents stock price
movement that is half as volatile of the S&P 500 Index, but the stock
price tends to move in the opposite direction. |
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