What is the beta coefficient?

Beta coefficient is a measure of the risk and return of the asset in relation to the wide market, which means that it will more or less show how the asset or portfolio of assets will react, how the market moves up or down. It is used in the price of capital assets (CAPM) and regression analysis. In principle, CAPM is used in the portfolio administration to calculate the expected return of the asset. Regression analysis is essentially a statistical method used in financing to estimate a connection that could exist between two variables, such as the only stock and the whole stock market. That is why the asset coefficient is calculated in the calculation of the asset concerned, the historical returns will be used to measure its connection to the performance of the wider market. The investor who seeks to measure the expected yield of specific shares, for exams, will use the stock market index to represent the wide market. The stock market index will usually have a beta coefficient of 1.0 and theoretically security, which is 1.4, is 1.4 times higher than the transfer of the index. It means that pThe stock market index should move up or down by 20 percent, security would move by 28 percent accordingly.

On average, many securities have a beta coefficient of 1.0, which means that they are more or less moving in accordance with the market. Security with a beta coefficient of more than 1.0 is more risky than the average market and is suitable for more aggressive investment strategies. On the other hand, those whose beta coefficient is below 1.0 are considered less risky because their performance is less bound to a systematic risk. In addition, there are assets whose beta is negative, and they tend to have boring returns when the economy is robust, but in a decline they tend to overcome most of the other investments.

The

ASPECTION with negative beta beta is by its very nature less sensitive to systematic risk, and therefore the investor can use this type of asset to ensure its portfolio. In this sense, it is to ensure thattried to balance the losses that could result in if a systematic event occurs. In addition, when it performs regression analysis, the individual can use historical revenue data to estimate the connection between the performance of the asset and the performance of the wider market.

beta asset may change over time; For example, beta beta of a particular asset may be 1.2 for about decades, then for various reasons it may change to 1.4 in the next decade. In the regression analysis, the beta coefficient should be the same for sample samples. This means that if an individual should use a sample of two decades, where it was 1.2 and the other 1.4, the resulting information will be the most misleading.

In addition,

In addition, the estimate of the return of the asset may also be graphically represented in regression analysis. The chart will usually be a scattering diagram, with an X -axis devoted to the market performance and the Y axis is for an asset whose performance is measured. The chart will have scattered points that represent specific historical yields for uthe river period. In addition, there will be a line that best suits the hips, and the steeper the slope of the line, the greater the beta assets or the more risky the asset will be.