Latest Article 

Photo Credit:  Peter Hellberg

Photo Credit: Peter Hellberg

Article Archives

The Meaning of Beta

What is Inflation

Marketing Basics

The Meaning of Beta

The risk of stocks has a special name in the world of finance--beta. The simplified explanation of beta is that it tells you how the value of a stock moves up and down with an index like the S&P 500. You don't really have to know how it is calculated but knowing the beta for each stock gives you an idea of how risky it is.

If a stock has a beta of 1, it means that its value moves up and down by the same percentage as a market index like the S&P 500 moves up and down. A stock that moves with this index is said to have the same risk as the market. For example, if the S&P 500 index has a value of 5,000 today and moves to 5,500 tomorrow, this represents a 10% increase. If the stock of company XYZ has a beta of 1, you would roughly expect its value to also increase by approximately 10%.

A stock with a beta of 1 is not really considered risky when compared with the overall stock market. A stock with a beta of, say, 2 means that each time the S&P Index moves up by 10% or so, the stock of company XYZ moves up by 2 x 10% = 20%. It also means that this same stock can move down 20% in value as well. So in general, high beta stocks are riskier than low beta stocks. But some people like risk because, even though they can lose a lot of money, they can also win a lot if the market goes their way.


Photo Credit:  Mitya Ku

Photo Credit: Mitya Ku

Business Ideas for Young Entrepreneurs

Nam eget dui. Etiam rhoncus. Maecenas tempus, tellus eget condimentum rhoncus, sem quam semper libero, sit amet adipiscing sem neque sed ipsum. Nam quam nunc, blandit vel, luctus pulvinar, hendrerit id, lorem. Maecenas nec odio et ante tincidunt tempus. Donec vitae sapien ut libero venenatis faucibus. Nullam quis ante. Etiam sit amet orci eget eros faucibus tincidunt. Duis leo. Sed fringilla mauris sit amet nibh. Donec sodales sagittis magna.