Wednesday, June 25, 2008
Beta value of a stock can take one of the following forms.
- Negative Beta – This is a rarity, and means the stock is moving just reverse to the market.
- Zero (0) Beta – This means the value of the stock stays same irrespective of market movement. Again a rarity.
- Beta between 0 and 1 – This means the stock price swing less compared to market movements. Many blue chip company stocks and high-liquidity stocks have beta less than one. In a long-term prospective these stocks fall under low-risk low-profit category.
- Beta of 1 – This means the stock price moves in the same relation with the market. This can be the case with many index-related products.
- Beta greater than 1 – This means the stock price swings more compared to market movements. Many growing companies and technology companies have beta greater than one. Most of these stocks fall under high-return high-risk category. Also remember, beta at very high levels probably indicates high price volatility because of low-liquidity.