Beta Definition & Meaning | Technical Indicator | CSIMarket
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Glossary

Beta

Technical Indicator

Beta is a financial measure that indicates the degree of sensitivity of an asset or a portfolio of assets in relation to the movements of the broader market. It is commonly used in technical analysis to assess the risk and return of a security. A beta of 1 indicates that a security*s price will move in line with the market, while a beta greater than 1 means that the security is more volatile than the market, and a beta less than 1 means the security is less volatile than the market.

The beta formula is:

Beta = Covariance (Return of the security, Return of the market) / Variance(Return of the market)

Where covariance is a statistical measure of how two variables move in relation to each other and variance measures the spread of data points around the average.

In technical analysis, beta is used as a tool to predict future returns on a stock or portfolio of stocks based on past performance. Investors generally use beta as a proxy for risk, with higher beta indicating higher risk and potentially higher returns, and lower beta indicating lower risk and potentially lower returns. Beta is also used in portfolio diversification to balance overall risk exposure.


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