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The beta of a stock

The beta of a stock is a measurement of stock volatility in a relation to the market. When the stock moves less than the market stock beta is less than 1.0. So High beta stocks is risky as it provides higher return potential. The low beta stocks has low risk. Critics argue the beta does not give information about the fundamentals of a company. They have a limited value when making stock selections. It is a good indicator as it has short-term rather than long-term risk. The CAPM formula uses the total average market return and beta value of the stock. They are used to determine the rate return that shareholders based on perceived investment risk. {Beta} = \frac{\text{Covariance}}{\text{Variance}}Beta=VarianceCovariance

Advantages : The stock price variability is important while assessing the risk. They will offer a clear and quantifiable measure to work. There are variations on beta depending on the market index and time period. The notion of beta is a straightforward and convenient measure used to calculate the cost of equity.

Disadvantages : If you are investing depends on stock fundamental beta has some shortcoming. Beta does not incorporate new information. We consider a utility company as Company X.It is considered a defensive stock with a low beta. After entering the merchant energy business it is assumed more debt X. The historic beta has no long risk for the company.

High beta stocks

The low beta signifies lower volatility and falls lower in bearish market. Stock investment is a risky business. The money grows when invested and there is no other alternative method. When you entrust your money to someone with a view to growing the risk occurs. The shares with a beta value are high beta stocks. The investors create significant wealth by investing in shares and high beta stock.

Investing in high beta stocks : The high beta stocks have high risk and generate high returns. Investing in stocks after evaluation and monitoring help you to create wealth and returns are higher than inflation.

Low beta stocks

The stock is less volatile if the beta is less than one. While beta greater indicates that it is more volatile than the market. If you are considering an investment in the stock market, there are a number of things you should while stock purchasing. First, we should see how much risk you are willing to take. If a company is looking to expand another entity has to raise capital to do so. To determine a stock that is considered a high includes beta value. The low-risk stock has a payout in small dividends but you have less lose on low-risk stocks as well.