Quick Finance Tip - Beta

Beta is the relationship measurement between the price of a stock to the market. Therefore, if a stock has a beta of 2, per every point the market moves, the stock will move by two points.

Calculation For Beta:
(Correlation between Stock and Market) * (Standard Deviation of a Stock's Returns / Standard Deviation the Market's Returns)

Other Key Point:
Beta estimates are sensitive to the method of estimation and data used which includes factors such as (i) estimation period, (ii) periodicity of the return interval, (iii) selection of an appropriate market index, (iv) use of a smoothing technique (analysts adjust historical betas to reflect tendency of betas to revert to 1), and (v) adjustments for small-cap stocks (exhibit greater risks/returns relative to large caps).