How to Assess Your Stock’s Beta and Sensitivity?
Beta is a measure of a stock's volatility in relation to the overall market.
By calculating beta, you can measure the stock's volatility with respect to the broader market or index.
If a stock PQR has a beta of 2.5, it indicates that for every 1 point change in the market or index, stock PQR moves 2.5 points and vice versa.
To calculate beta use this formula-
β = % Change in Stock Price
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% Change in Market Price movement
| Beta value | Meaning | Volatility |
|---|---|---|
| >1 | High fluctuation | more than market |
| <1 | Low fluctuation | less than market |
| =1 | Market aligned | same as market |
- A beta greater than 1 indicates that the security's price tends to be more volatile than the market.
- A beta of less than 1 means it tends to be less volatile than the market.
- A beta of 1 indicates that the security's price tends to move with the market.
Beta shows a stock's price risk compared to the market, without considering other risks.
Stocks with a high beta have a higher risk but a higher return, whereas low beta stocks have a lower risk but a lower return.