Beta in The Stock Market

What is Beta (β)?

Beta is a statistical tool used to measure the relative movement of an individual security to a benchmark (like the overall stock market). 

Beta (β) Is the measure of volatility of an individual security or a portfolio to open marklike an index or the market as a whole. Beta is used as a measure of risk and beta defines risk as volatility in the price of the security. 

The Formula of Beta (β) is as follows

Beta Coefficient (β) = Covariance (R_e, R_m) ➗ Variance (Rm)

where,

Re = the return of the individual stock or portfolio

Rm = the return of the benchmark (usually the overall market)

Covariance = relationship between the returns of the individual stock or portfolio to the returns of the benchmark

Variance = the average deviation of the reuters of the benchmark