Stock Beta and Volatility

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NUMBER CRUNCHER
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Stock Beta and Volatility

Postby NUMBER CRUNCHER » Thu Dec 15, 2016 3:27 pm

Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market.

The calculation of beta is based on extremely sound finance theory. The CAPM theory is excellent when it comes to pricing stocks, and is far easier to put into practice. Beta allows the investor to understand if the price of that security has been more or less volatile than the market itself, which is certainly a good variable to understand before adding any security to a portfolio.

Beta measures the responsiveness of a stock's price to changes in the overall stock market. On comparison of the benchmark index for e.g. NSE Nifty to a particular stock returns, a pattern develops that shows the stock's openness to the market risk. This helps the investor to decide whether he wants to go for the riskier stock that is highly correlated with the market (beta above 1), or with a less volatile one (beta below 1).

For example, if a stock's beta value is 1.3, it means, theoretically this stock is 30% more volatile than the market. Beta calculation is done by regression analysis which shows security's response with that of the market.

By multiplying the beta value of a stock with the expected movement of an index, the expected change in the value of the stock can be determined. For example, if beta is 1.3 and the market is expected to move up by 10%, then the stock should move up by 13% (1.3 x 10).

Beta is the key factor used in the Capital Asset Price Model (CAPM) which is a model that measures the return of a stock. The volatility of the stock and systematic risk can be judged by calculating beta. A positive beta value indicates that stocks generally move in the same direction with that of the market and the vice versa.

Source : http://economictimes.indiatimes.com/definition/beta
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NUMBER CRUNCHER
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Colombo Stock Exchange - Beta

Postby NUMBER CRUNCHER » Thu Dec 15, 2016 3:42 pm

Colombo Stock Exchange - Beta (Dec 15, 2016)
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Re: Stock Beta and Volatility

Postby NC+ » Thu Dec 15, 2016 6:24 pm

Thanks NCr... :)
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dhanurrox
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Re: Stock Beta and Volatility

Postby dhanurrox » Thu Dec 15, 2016 8:10 pm

Our stocks have unusual beta.Market up they wont move up or wont trade.Market down they go down

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Re: Stock Beta and Volatility

Postby SHARK » Thu Dec 15, 2016 9:20 pm

Thanks NCr.
A good list.
Can add few more :D
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Re: Stock Beta and Volatility

Postby Blue Whale » Thu Dec 15, 2016 11:19 pm

This is right in theory. But I faced many practical difficulties in explaining the practical meaning of these values in my empirical analysis.
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Re: Stock Beta and Volatility

Postby PAT » Fri Dec 16, 2016 1:17 am

Thanks NC.........
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Re: Stock Beta and Volatility

Postby NUMBER CRUNCHER » Fri Dec 16, 2016 3:40 am

Thanks Shark. Will update the list with frequently discussed shares on TEC.

SHARK wrote:Thanks NCr.
A good list.
Can add few more :D
The stock market is a device for transferring money from the impatient to the patient.Warren Buffett

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Re: Stock Beta and Volatility

Postby NUMBER CRUNCHER » Mon Dec 19, 2016 10:38 am

Has anyone noticed the beta values given on CSE website ? It seems to be wrong. Less volatile shares like NEST having higher beta and high volatile shares like ALUF having low beta (refer the attached screenshots)
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