What is the Alpha & Beta of a stock

What is the Alpha & Beta of a stock?

Alpha of the stock

After correcting for market-related volatility and random variations, alpha is the excess return on an investment. For mutual funds, stocks, and bonds, alpha is one of the five key risk management indicators. In a way, it informs investors whether an asset has regularly outperformed or underperformed its beta.

The beta of a stock

In comparison to the market as a whole, beta is a measure of a security’s or portfolio’s volatility or market risk.

Beta data on a single stock can only provide an investor a rough idea of how much risk the stock might add to a well-diversified portfolio.

In layman’s terms, beta indicates how much a stock’s price may fluctuate in comparison to the overall market or index.

If a stock’s beta is 1, it suggests that it should move in sync with the index.

For example, if a stock’s beta is 2, a 10% increase in the index should result in a 20% increase in the stock’s price.

When the beta is negative, the stock price moves in the opposite direction as the index price.

Post Disclaimer

Information provided on this website is for Educational & Informational purposes only and is not considered to be advice or recommendation of any kind whatsoever. Anyone who wishes to apply the concept & ideas contained in this shall take full responsibility. Readers should always do their own diligence on any information perceived from this site to form their own opinion and best judgments. Any action you take upon the information you find on this website (letsthinkwise.com), is strictly at your own risk.

Leave a Reply