Systematic risks in stock investing: What is Beta

1. Beta is the measure of the systematic risk that is carried by a stock.

2. Systematic risk is caused by factors which affect the entire market and are not stock or industry specific like oil prices and interest rates.

3. It is calculated by measuring the volatility in the price of the stock relative to the market index.

4. A beta of 1 indicates that the stock’s price moves in line with the market, beta of less than 1 means that the stock is less risky than the market and a beta of greater than 1 indicates that the stock is riskier than the market.

5. High beta sectors like real estate and infrastructure tend to do better in a rising market and worse in a falling market whereas low beta sectors like FMCG and pharma do not rise as much as the market and do not fall as much too.


(The content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)