What Is a Stock Beta?

The beta value is a risk index used to measure the price fluctuations of individual stocks or stock funds relative to the entire stock market. The higher the value, the greater the volatility of the stock relative to the performance evaluation benchmark, and vice versa. When = 1, it means that the stock's returns and risks are consistent with the market index returns and risks; when > 1, it means that the stock's returns and risks are greater than the market index's returns and risks.

beta value

Beta measures investment-related

The beta coefficient is an indicator that measures the overall volatility of stock returns relative to benchmark returns for performance evaluation and is used to measure systemic risk. Investors can make effective stock selection in the market with a strong trend through the measurement of systemic risk indicators. The higher the value, the greater the volatility of the stock relative to the performance evaluation benchmark, and vice versa. When = 1, it means that the stock's returns and risks are consistent with the market index returns and risks; when > 1, it means that the stock's returns and risks are greater than the market index's returns and risks. ^[1]

Based on the above characteristics of the coefficient, after comparing the values of different industries, it is found that some industries with stable valuation levels, such as nonferrous metals, transportation, steel, and public utilities, generally have a stable value of less than 1. From these industries, Characteristics We can also conclude that the value of general low price-earnings stocks and cyclical stocks is relatively small. In contrast, the value of those stocks with high growth and high price-to-earnings ratios and theme stocks is generally greater than 1.

According to the size of the beta coefficient of different sectors, investors can be provided with stock selection ideas at different stages. The performance of the Shanghai Securities Index is taken as an example. In the first quarter, there was a trend of a unilateral decline in the market. Of course, investors who have better position control will of course choose the trend investment first, and keeping the position as low as possible is the way to win. However, for most investors, they may face what kind of stock they are holding and can resist the market. After the concept of coefficient, investors will understand why in the downward trend, institutional investors are more willing to change positions to Stocks with smaller coefficients, such as utilities and transportation, because their value is less than 1, during the decline, the decline may be smaller than the broader market index. After understanding this principle, what we are facing may be a round of rebound. At this time, investors should choose stocks with relatively large coefficients, so that they can obtain excess returns over the broader market index. We find that in this round of rally, the brokerage stocks represented by CITIC Securities have a higher value, and their gains have far exceeded the market. If the future rebound can continue, investors can continue to pay attention to high-beta subject matter stocks such as military industry, aviation, machinery, new energy, etc. Once the market returns to the adjustment market, timely replacement of low-beta stocks can reduce risk.