I finally get what is Beta
Nope the Beta I am talking about is not the Beta from Beta Thoughts but the Beta of financial markets. Few years or may be months back, see in the first few years of marriage time doesn’t matter 😀 but I am digressing. So few months back a longtime friend started discussing in his inimitable style yaar, what is this beta my collegues keep talking about.Â I didn’t knew a iota about this beta.
Then I started reading A Random Walk down Wall Street in July when I quoted the author about Madness of the Crowds. Books like Random Walk take its own sweet time to get digested. I was only able to finish five chapters in the first go. I picked it again in this month of Oktoberfest while flying for work. I finally saw the light and now I know what is Beta. From the book
Beta is the numerical description of systematic risk. Despite the mathematical manipulations involved, the basic idea behind the beta measurement is one of putting some precise numbers on the subjective feelings money managers have had for years
The calculation begin by assigning a beta of 1 to a broad market index, such as NYSE index or the S&P 500. If a stock has a beta of 2, then on average it swings twice as far as the market. If the market rises by 10 percent, the stock rises by 20 percent. If a stock has a beta of 0.5, it tends to be more stable than the market (it will go up or down 5 percent when the market rises or declines by 10 percent).
Isn’t it easy.