Stock Market | 101 Market Stock Investing - Beta Industry Find File

Stock Market Industry Beta is the measure of a stock price 's trading 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 price 's 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 stocks are more volatile than the market.

Betas can be determined for all industries as well. The "industry beta" would be to compare the volatility of the industry in relation to the market. For example, technology stocks tend to be more volatile than the industry for the beta would be more than one, usually.

To calculate industry beta you need some historical data of stock prices in the industry and the historical price data of the entire market. For example, if you want to calculate beta over the past year to compare technology stocks versus the S & P 500, we 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 over the previous day. Once we have 365 of these we average group to determine the average motion of each fact in the last year. We can call the industry's movement and the movement Ri Rm half the market average. Finally, divide the technology industry "s moving average for the S & P 's moving average and have a result that is less than 1 (less volatile), 1 (also volatile), or greater than 1 (more volatile) . Written out this function is as follows:

Β = Ri / Rm or B = Covariance (Ri, Rm) / Variance (Rm)

Beta can be useful in the investigation of values ??in judging how risky it is an action against a stable investment with a guaranteed rate of return. Note that the longer time period of the beta becomes more accurate than the beta will be. Also, beta versions are more valuable when used with actions that have a long history of high-volume operations. Decrease in stocks that don 't much trade can vary enormously from a day's work and launch the beta blow out during the period being measured.