Beta-factor - an indicator that measures the risk in the stock market

The modern economic system, which forms the conditions of existence for large corporations, enterprises and even state-owned companies through the creation of joint-stock companies, has already become familiar to any person. Of course, in our country investing in securities does not have such a level of popularity among the population, as in the rest of the civilized world with a developed market system of economic relations. However, recent trends indicate an ever-increasing reorientation of ordinary depositors of bank deposits to more complex investment systems. This, in turn, is a good signal for Russian society, which indicates the gradual approach of our homeland to the western standard of living and the priority of values. Of course, God forbid to do without the economic side of the modern civilized world, without its absurd sides.

Beta Ratio

Realization of mutual relations of owners of the capital and the joint-stock companies occurs in the share markets. They are one of the main segments of the financial system of a modern market economy. With their help there is a mobilization of the population's funds and a reorientation of capital into the necessary channel of the world economy. At the same time, stock markets organize direct co-operation between the capital of the depositor and the joint-stock company. To ensure the process of investing in accordance with the wishes of the depositor, there is a mathematical notion of a risk measure called a beta coefficient. This indicator reflects the possibility of risk or its absence when contributing funds to a particular joint-stock company. Thus, the beta coefficient Provides the investor with information expressed in statistical data for a certain period of time of existence of a joint-stock company in the securities market and the ratio of its value to market fluctuations. This indicator is able to inform the investor about the possibility of increasing the value of the portfolio of securities with the general growth of the stock market or its decrease with a general fall. It allows you to determine the necessary balance between the risk and return on securities.

How to calculate the beta coefficient?

To determine this indicator, methods of mathematical covariance are used, that is, methods for calculating quantities that reflect the dependence of two random values. Thus, the beta coefficient of the market portfolio is Dependence, expressed in numerical form, on the current indicator of market fluctuations for a certain time period. That is, with a general growth of the market by 10% and a beta coefficient of 0.5 units, the value of the securities portfolio of the joint-stock company will grow by only 5%. To calculate this indicator, a covariance-dispersion formula is used, the beta coefficient According to   Which is determined as follows:

Βa = Cov (ra, rp) / Var (rp), where:

• Ra is the value that determines the given coefficient;
• Rp - the securities market;
• Cov - covariance of quantities;
• Var - the dispersion of the securities market.