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What is Beta?

It is a measure of volatility.

Academics define risk as volatility. Real people don't, they consider risk to be likelihood of loss. They are not the same thing.

However, if you assume the academic point of view that risk is volatility, then beta is the way they measure it.

Basically, they look at how each stock's price changes correlate with changes in the market as a whole.

If a stock's price tends to move exactly in line with the market, it is said to have a beta of 1.0.

If a stock tends to move by 6% when the market moves by 5%, then that stock will have a beta of 6/5 or 1.2 and is more risky (volatile) than a stock with a beta of 1.0.

Beta was "big" a couple of decades ago, when the ASX used to put out a Beta Book. However, not much is heard of it these days except in esoteric valuation models.

To learn more, type Beta,stock into an Internet search engine, there is lots out there.

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