Beta (or the "beta coefficient") is a way to measure the relative risk (as measured by volatility) of a share or tracker fund. It does so by comparing the historic movement in the share price to that of the market as a whole.
So, for example, if a share typically moves up by 10% when the market has risen by 50%, beta is 10/50 = 0.2. Equally, a share that increased by 100% when the market rose 50% has a beta of 100/50 = 2. Therefore, a stock that swings more than the market over time has a beta above 1.0, while a stock that is less volatile than the market will have a beta below 1.0.
Shares with a high beta are generally more volatile and therefore seen as higher risk than those with a low beta such as utility companies.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: What is 'beta'?
-
Paying the grandkids’ school fees could generate a shock IHT billPrivate school fees have soared as a result of the government’s VAT policy, meaning more grandparents are helping out – but what are the tax implications?
-
Number of savings deals hits record high – as interest rates slump to two-year lowSavers have more choice than ever when it comes to choosing a savings account or cash ISA. But, the interest rates on offer continue to fall. What’s next for the savings market?
