Answer Posted / vijesh
Beta is referred to as financial elasticity or correlated
relative volatility, and can be referred to as a measure of
the asset's sensitivity of the asset's returns to market
returns, its non-diversifiable risk, its systematic risk or
market risk. On an individual asset level, measuring beta
can give clues to volatility and liquidity in the
marketplace. On a portfolio level, measuring beta is
thought to separate a manager's skill from his or her
willingness to take risk.
The beta movement should be distinguished from the actual
returns of the stocks. For example, a sector may be
performing well and may have good prospects, but the fact
that its movement does not correlate well with the broader
market index may decrease its beta. However, it should not
be taken as a reflection on the overall attractiveness or
the loss of it for the sector, or stock as the case may be.
Beta is a measure of risk and not to be confused with the
attractiveness of the investment
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