stock beta what is it for investing in the stock market
Beta is all about how much a given security will move up or down in price when the GENERAL market moves up or down. The higher the Beta the more the security will move based on the current market conditions. For instance say you have a security with a beta of 1 and another security with a beta of 2. The security with a beta of 2 will fall much faster than a stock with only a beta of one, if the general market DOW NASDAQ are falling. However if the market is going up, the security with a beta of 2 will go up much faster than the one with the beta number 1. So as you can see in a certain sense the higher this number is the more risk you have in your investing ventures. Many experts will say that you should invest in high beta stocks in a good economy and low beta or perhaps NEGATIVE beta stocks in a down economy. If they have a negative number they will do the inverse of the market. stock market graphs lol Meaning if the market is going down they will tend to go up and if the market is going up they will tend to do down. Basically the number is just a test of the securities volatility in the general market. There are a few securities that have a stock beta that is a negative number. The problems with beta for a market strategy and smart investingThe problems when looking at this is that the beta only takes into account what has happened thus far with the security and doesn't consider future news on the investment or future economic beliefs. low risk investingIn short I think that traders use this figure more than investors do in fact. Meaning that the number can change anytime and become more or less volatile. So investors should look at stock beta but take it with a grain of salt becasue they can change within a few days depending on economic feelings and new information. |