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Stocks and Beta

"The study level of Other is Master."

Let's suppose I am a Martian who has just landed outside your dwelling, one morning. I notice a newspaper in the yard open to the financial section and there is a reference to stocks and betas. How would attempt to explain to one very friendly Martian (who will do you no harm), what beta is, does, and why it should be considered. You can "play" off of others participants answers too. You can take me to your leader later. Thank you.

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Please see response attached, which is also presented below. I hope this helps and take care.

RESPONSE:

SCENARIO: "The study level of Other is Master." Let's suppose I am a Martian who has just landed outside your dwelling, one morning. I notice a newspaper in the yard open to the financial section and there is a reference to stocks and betas. How would attempt to explain to one very friendly Martian (who will do you no harm), what beta is, does, and why it should be considered. You can "play" off of others participants answers too. You can take me to your leader later.

First, the Martian would need to understand what the term "stock" was referring to. Stock is ownership of a corporation indicated by shares in that corporation, which represent a piece of the corporation's assets and earnings.

- How should investors assess risk in the stocks they buy or sell? As you can imagine, the concept of risk is hard to pin down and factor into stock analysis and valuation. Is there a rating--some sort of number, letter, or phrase--that will do the trick? (2)- One of the most popular indicators of risk is a statistical measure called beta. Beta is the measure of a fund's or a stock's risk in relation to the market or to an alternative benchmark. (1)

- Said another way, Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the ...

Solution Summary

In reference to stocks and betas, this solution explains the two concepts. It also expands on the concept of beta in terms of what beta does and why it should be considered. The advantages and disadvantages of beta are also detailed.

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