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Beta coefficient

Beta is a risk coefficient measuring how sensitive a stock’s return is to the return of the market index (BIST 100). Beta shows a stock’s systematic risk: how much, on average, the stock moves when the market moves 1%.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • It is the key input of expected-return models such as CAPM in portfolio theory.
  • A beta of 1 means the stock moves with the market; above 1 it is more volatile (aggressive), below 1 calmer (defensive).
  • beta is backward-looking and changes over time.

Formula / calculation

Beta = Covariance(stock return, index return) / Variance(index return). It is usually estimated by regressing daily or weekly returns over the last one to three years.

Interpretation

A beta of 1 means the stock moves with the market; above 1 it is more volatile (aggressive), below 1 calmer (defensive). A negative beta means moving against the market and is rare.

Pitfalls

beta is backward-looking and changes over time. Illiquid stocks may show a low beta despite high risk. Beta measures only market risk, not company-specific risk (balance sheet, management). Evaluate it with volatility.

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Frequently asked questions

Beta is a risk coefficient measuring how sensitive a stock’s return is to the return of the market index (BIST 100).

Beta = Covariance(stock return, index return) / Variance(index return). It is usually estimated by regressing daily or weekly returns over the last one to three years.

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