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What is 'Beta'


Calculating 'Beta'


Using Beta

A security's beta should only be used when a security has a high R-squared value in relation to the benchmark. The R-squared measures the percentage of a security's historical price movements that could be explained by movements in a benchmark index. For example, a gold exchange-traded fund (ETF), such as the SPDR Gold Shares, is tied to the performance of gold bullion. Consequently, a gold ETF would have a low beta and R-squared in relation to a benchmark equity index, such as the Standard & Poor's (S&P) 500 Index. When using beta to determine the degree of systematic risk, a security with a high R-squared value, in relation to its benchmark, would increase the accuracy of the beta measurement.

Beta is just one useful metric for evaluating a stock's trading tendencies. Here is a list of the top and bottom 3 Beta stocks in the S&P 500. The list updates daily, so add stocks to your Watchlist so you can check on their performance, financial metrics and fundamental indicators.


Interpreting Beta


Many utilities stocks have a beta of less than 1. Conversely, most high-tech, Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk. For example, as of May 31, 2016, the PowerShares QQQ, an ETF tracking the Nasdaq-100 Index, has a trailing 15-year beta of 1.27 when measured against the S&P 500 Index, which is a commonly used equity market benchmark.

Test your beta knowledge and read more here: Beta: Know the Risk and Calculating Beta: Portfolio Math for the Average Investor.

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