Beta of stocks:
When stock price fall down, don’t panic.
First finds out which force is Acting.
Whether its Index force
whether its Sectors force
whether its company force.
If its Index or Sector force, then No need to panic.That means all stocks in the sector are falling, then don’t worry.
But, Only one company is falling and Rest of the Stocks are not, then you need to Find reason for it.
You can find out the Beta of stock to measure the degree of fall.
Beta of stocks is the Rate of price change in particular stock as compared to the respective Index.
If stocks falls 2% and if the index falls 1% then beta is 2
How to measure beta of stock?
ANS: It’s already there in the software.
Equation of beta is
Beta= Covariance of Stock & Index /Variance of index
What should be ideal beta of the any company stock ?
There is no ideal Beta.
Low beta stocks fall less but they rise less. So return is less.We can shift low beta stocks in Bear Market and Buy High Beta stocks in Bull market