WHAT IS BETA?
Beta measures the volatility of a stock, Which measures the sensitivity of a stock related to the market.
The ranking of individual stocks is depended on their deviation from the stock market. A stock that changes more than the market with time has a beta over 1.0. These stocks with a higher beta are known as High Beta Stocks.
High beta stocks are considered to be risk full but can provide higher returns. Although Low beta stocks are less risky, the returns are much less. A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and if the beta is less than 1.0
that indicates a stock with lesser volatility. Beta is probably a better indicator of short-term rather than long-term risk.
The volatility of the stocks gets increased with the increase in beta value.
CALCULATION OF BETA
For the calculation of beta, we must know the Covariance(a measure of stock’s return respective to that of the market) and the Variance(a measure of how the market advances respectively to its mean) of the market returns.
Beta= Covariance/ Variance
The calculating formula for beta is the covariance of the yield of a stock with the yield of the benchmark, divided by the variance of the yield of the benchmark in a certain period.
HOW TO SELECT STOCKS For intraday based on it’s Beta?
- Before a day, add the checked stocks to your watch-list and check the trend of the stocks, delivery data, technical support, etc.
- On the very next day, at 9.30 am, recognize the scripts that have obtained or dropped more than 1% and use those for day trading.
- You can get to the buy-side if Nifty is over 0.25% and to the sell-side if Nifty is under 0.25%.
- Using the RSI or stochastic indication, identify the small backtrack, and wait for it.
- After verification, enter the next candle.
- Beginners can keep the target of 0.3% of the stock price while experts can keep the targets according to technical inspection.
It is necessary that the traders can differentiate between short-term risks and long-term risks.