Reply To: Beta coefficient
manveena
Beta coefficient measures the market systematic risk of shares.
When beta is one, the return on the share changes at the same rate as the average return on the market.
When the coefficient is two, the investment risk is greater and the return varies so that the average is double the return on the market.
If beta is under one, the share has a lower risk and changes on the market have on average a smaller impact on the return.
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Since beta can be calculated for individual stocks, what if I want to calculate of the portfolio? Can I do this and if I am able to do this, what would be the relevance of this?
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Portfolio beta can be calculated as a weighted average of all the individual beta where the weights are the portfolio capital share of each stock.
Coming to the relevance, beta portfolio would tell you how risky investment in that portfolio would be.
Do let me know if I’m wrong!
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