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Registered User
Joined: 10/7/2004
Posts: 13
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I don't understand the help file's definition of "beta".
Does beta track the correlation of a stock's price to the market price?
Does it measure relative volatility?
Does it have to do with earnings or some other fundamental?
I hope you'll clarify this for me.
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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Beta is based soley on price.
Beta measures both correlation to the SP500 in direction and volatility.
A Beta of 1 means the stock moves with the SP-500
A Beta of -1 means the stock moves like the SP-500 but in the opposite direction
A Beta of 2 means the stock moves in the direction of the SP-500 but at twice the magnitude.
- Craig
Here to Help!
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Registered User
Joined: 10/7/2004
Posts: 13
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Craig - Thank you. that's exactly what I wanted to know
Pat.
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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You're welcome.
- Craig
Here to Help!
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Registered User
Joined: 1/1/2005
Posts: 2,645
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pmckeon,
It is quite understandable that you do not understand the Help Files definition of Beta since it does not even give one. The statement about Beta is at best misleading. Please see:
http://www.worden.com/training/default.aspx?g=posts&t=21558
Perhaps the most misleading statement is:
"A beta of 1 means that the market and the stock move up or down together, at the same rate. That is, a 5% up or down move in the market should theoretically result in a 5% up or down move in the stock."
It is the converse of this that is true, i.e., if the market and the stock move up or down together at the same rate, then beta is 1. For example, SPY presently has a beta of 1.
Please see:
http://www.worden.com/training/default.aspx?g=posts&t=30338
If you follow the setup suggested there, you will observe stocks with beta near 1 which do not at all move similar to SP-500.
Thanks,
Jim Murphy
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