There are several ratios in the financial market that have helped brokers understand and estimate risk for years, which can help individuals make better decisions when it comes to planning their
own investments. Richard Cayne of Tokyo’s leading financial and investment consultancy mentions that the Beta is one measure that will help you understand a stock’s volatility. Beta is
essentially used to help gauge the fluctuations in the prices of stocks in relation to the entire market. In other words, Richard Cayne
Tokyo explains that Beta is used to compare the stock market’s risk to that of the greater market, as well as the stock market’s risk in comparison with other stocks.
Analysts use regression analysis in order to arrive at the Beta value for stocks. Richard Cayne of Tokyo adds that different values of Beta show the tendency of the stock or security’s price to
fluctuate with the market. For instance, a beta value of 1 means that the stock’s price will move with the market, while a value greater than 1 would mean that it is more volatile than the
general market. On the other hand, Richard Cayne of Tokyo mentions that a beta value of less than one indicates that the stock is less volatile than the market.
Richard Cayne of Tokyo adds that beta essentially represents the tradeoff between minimizing and maximizing risk. Richard Cayne of
Tokyo further goes ahead to explain how the beta values correlate to the market and what investors can make of them when planning their investments.
Beginning with negative beta, a value less than 0, this would mean that there is an inverse relationship with the market, where the stocks move higher in a falling market. While the possibility
of this happening is highly unlikely, some investors opine that gold stocks should be assigned negative beta, since they tend to do better in an otherwise declining market.
A beta of 0 is mostly assigned to cash. Since the value of cash remains the same irrespective of which way the market moves, not taking inflation into account, it makes sense to have a beta value
of 0.
As mentioned above, a beta value between 0 and 1 is the evaluation for those companies that are less volatile as compared to the rest of the market, or bear a lower risk level than other
securities. Utilities generally feature such a beta value.
A beta value of 1 is used to represent the volatility of a given index as compared to the overall market, such as the S&P 500. If an index fund features a beta close to 1 it means that it
will be following the trends of an index such as the S&P 500. A beta value of more than 1 makes the stock more volatile than the broad-based index, which is a characteristic found mostly in
technology companies. Richard Cayne of Tokyo explains that knowing your own risk tolerance capacity and then choosing a stock after looking at its beta value will help you plan your investments
better.
Richard Cayne Meyer originally from Montreal Canada currently resides in Bangkok Thailand and runs the Meyer Group of
Companies. Prior to which he was residing in Tokyo Japan for over 15 years and is one of the founding members of Asia Wealth Group Holdings Ltd a London, UK Stock Exchange Financial
Holdings Company.