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Finding Stock Market Industry Beta
Published by DavidWaring
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Default Finding Stock Market Industry Beta

Stock Market Industry Beta is the measure of how a stock s trading price moves compared to the market as a whole . Knowing this figure one can understand how volatile a stock is . A beta of 1 means a stock s price fluctuates exactly as much as the market . A beta less than 1 means a stock is less volatile than the market and a beta greater than 1 means that stock is more volatile than the market .

Betas can be determined for entire industries also . The industry beta would compare the volatility of the industry relative to the whole market . For example , technology stocks tend to be more volatile than the industry so the beta would be more than 1 , generally .

To calculate industry beta you need some historical data of the price of the industry stock and historical price data of the entire market . For example if you were going to calculate beta over the last year for compare technology stocks versus the S & amp ; P 500 , you would first gather the historical data you need . Next , determine the movements of the two prices after each trading day . This will give a percentage change versus the previous day . Once we have 365 of these we can average the group to determine the average move each made over the last year . We can call the average industry movement Ri and the average market movement Rm . Finally , divide the technology industry s average movement by the S & amp ; P s average movement and we will have an outcome that is less than 1 ( less volatile ), 1 ( equally volatile ), or greater than 1 ( more volatile ). Written out this function looks like this :

&# 914 ; = Ri / Rm or B = Covariance ( Ri , Rm )/ Variance ( Rm )

Beta can be useful in stock research when judging how risky a stock is versus a stable investment with a guaranteed rate of return . It must be noted that the longer period of time the beta is acquired the more accurate that beta will be . Also , betas are more valuable when used with stocks that have a long record of high volume trading . Smaller stocks that don t trade a lot can fluctuate wildly on a busy day and throw the beta out of whack for the period being measured .

Getting the right information can lead you to a successful stock investment . Don ' t miss out the trade secrets of finding stock volatility information when you visit, the ever popular 101 stock market investing blog .

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