Stock Beta Calculation

Stock Beta Calculation Traditionally, stock market investment has been proved as rewarding investment avenue. Despite frequent market volatility, investments in stocks yield good revenues in the long run. Although, the returns are higher in stock investing when compared to other types of investments, the risk associated is very high. Lot of homework is required before investing into stock market. One has to equip himself with proper education and experience stock market investing before entering into stock market. There are various techniques and tools available to access the stock market and individual stocks in particular.

Fundamental Analysis, Technical Analysis, Stock Beta calculation and stock Alpha calculations are some of the techniques used to analyze the stocks before buying them. Stock Beta calculation is a method to measure a stock's volatility in the stock market. Stock Beta calculation shows the degree of price movements when compared to over all market conditions.

It can identify the risk involved in buying a particular stock, or sector the stock belongs to. Stock Beta calculation is an important tool for both experienced as well as new investor to access a stock, its relationship with the market conditions. Stock Beta calculation can tell the potential and profitability of the stock over a long period. Stock Beta calculation starts from 1 and moves upwards or downwards. A Stock Beta 1 indicates a solid correlation of a particular stock with the current stock market conditions.

A Stock Beta above 1 means the stock is expected to move upward with great volatile then the average. If the Stock Beta calculation shows less than 1 and moves to negative, it is an indication of stock moving less volatile than the market. A negative Stock Beta calculation shows a particular stock's negative relation to market.

Normally, this happens with very few stocks, rarely. Gold and gold stocks some times give Stock Beta calculation less than 0 as they tend to perform better while the stock market is down. However, this also happens rarely. The best example for Stock Beta calculation 0 is the cash and cash like highly liquid instruments.

Irrespective of market movements the value of these instruments remains unchanged. Companies whose stocks are less volatile than the market show Stock Beta calculation between 0 and 1. These stocks are highly liquid but their returns are likely to be lesser. Stock Beta calculation 1 indicates the volatility of a particular index as an indication of overall market. The S&P 500 is the best example, as it always has a Beta of close to 1.

If a stock has a Beta of 1 that means it is moving in the same direction and the volatility is S&P 500. On the other hand a Stock Beta calculation is more than 1 indicates volatility is greater than the index. A good example of Beta greater than 1 is that the technology companies are in the NASDAQ. Stock Beta calculation is a great way to understand the market and the risk involved with a particular stock investment.

Whether you invest with a long term goal or a shot term goal, it is important to study the history of Beta calculations of your stock before investing in it. There are many ways to study the Stock Beta calculation. Your broker can provide a history of beta calculation of the stock which you are planning to invest. There are many online sources available that can provide you detailed analysis of Stock Beta calculation almost of every stock.

Dwayne Adams is the author of this article on stock beta calculation. Find more information about stock beta calculation here.