In: Finance
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. In other words, beta gives a sense of a stock's market risk compared to the greater market. Beta is also used to compare a stock's market risk to that of other stocks.
Beta is calculated using regression analysis, and you can think
of beta as the tendency of a security's returns to respond to
swings in the market. A beta of 1 indicates that the security's
price will move with the market. A beta of less than 1 means that
the security will be less volatile than the market. A beta of
greater than 1 indicates that the security's price will be more
volatile than the market. For example, if a stock's beta is 1.2,
it's theoretically 20% more volatile than the market.
So, i would like to conclude that the portfolio's with same beta
value have same risk involve in it. some times beta values may go
wrong because volatility of stocks depends on many factors like
news based, trend etc which are actully not considered by
beta.