Manag., November-2017 – Q19
- Option : A
- Explanation : Beta (β): One of the most popular statistical methods is standard deviation or variance used to measure the total risk (Systematic Risk + Unsystematic Risk) associated with a security. The systematic risk of a security can be measured by a statistical measure known as beta (β). In other words, the measure of quantifying the systematic risk of a stock is referred to as beta (β) analysis or volatility. Accordingly, the beta factor is the measure of the volatility of the systematic risk of a security or investment in the portfolio. It measures how the price of stock responds to market movements. It shows the extent to which the systematic risk of a security is correlated with the variability of the overall stock market.
The beta factor explains the correlation coefficient between the returns on a market portfolio of investments and the returns on a particular stock or investment.
Beta of a security is calculated by using historical data of returns of the security as well as a representative stock market index. The beta factor of the market as a whole is 1.0. The degree of volatility of the systematic risk of an asset may be expressed as either positive (above-average risk), negative, or zero (below-average risk).
