Beta and alpha
Beta measures the extent to which a share has, historically, gone up when the market as a whole rose, and gone down when the market went down. It is a share’s sensitivity to the market movements.
A beta of 1 indicates that generally (on average) in the past when the market rose by 10% this share rose by 10%. A beta of, say, 2 indicates a high sensitivity to market movements in the past. If the market rose by 10% this share tended to rise by 20%. This is fine if things are going well – you outperform the market. On the other hand, if the market fell by 10% your share showed a tendency to exaggerate the market movement by falling 20%.
Shares with betas under 1 have historically been more stable than the market as a whole. So, a share ...
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