What do you mean beta factor?

Answer 1

In finance, the beta (β or beta coefficient) of an investment indicates whether the investment is more or less volatile than the market. In general, a beta less than 1 indicates that the investment is less volatile than the market, while a beta more than 1 indicates that the investment is more volatile than the market. Volatility is measured as the fluctuation of the price around the mean: the standard deviation.

now what does it mean beta factor ??

BETA FACTORS:

The beta of an investment is a relative measure of the systematic risk of an investment. In other words it measures the specific risk of the company's shares relative to the market as a whole. In general, the sign of the beta (+/-) indicates whether, on average, the investment's returns move with the market or in the opposite direction to the market. The scale or value of the beta indicates the relative volatility of the particular stock.

A beta of +0.25 for instance, would indicate that on average, the investment's returns move one quarter as much as the markets do in the same direction. If the market rose by 10%, the investment would be expected to rise by 2.5% but on the other hand if the market fell by 10% the investment would be expected to fall by only 2.5%. A beta of -0.1 would indicate that on average, the investment's returns move one tenth as much as the market's do, but in the opposite direction. If the market rose by 10%, the investment would be expected to fall by 1%. Hence we can summarise a number of situations:

If Beta > 1 this means that the investment's returns will move, on average, in the same direction as the market's returns, but to a greater extent.

If Beta = 1 this means that the investment's returns will move, on average, in the same direction as the market's returns, and to the same extent.

If 0 -1, to the same extent if Beta = -1, and to a greater extent if Beta < -1. In practice it is rare to find negative beta stocks since they go against the trend of the market. One possible sector that could consist of negative beta stocks is the gold industry that tends to go against the trend shown by equity markets.

Beta factor analysis is a useful technique that has enabled many international investors to achieve satisfactory returns in the past. If one looks at the trends in world markets then one can see that in a bull market those investors that have followed a selective aggressive portfolio (i.e. including shares with beta factors of over 1 times) have generally outperformed the market.