What is Beta?
Beta is a measure of market risk or the volatility of investment in stocks. It helps investors choose stocks that fall within their comfort zone regarding risk.
Variables
There are several ways to calculate beta. One variable in the beta calculation is the look-back period of the calculation. Some calculations are based on three years of data, while others rely on five years of numbers.
How to Use It
What does beta tell us about investors? It sometimes gets lost in the noise of the market. One thing it doesn’t tell us is what beta will be next year. The calculations strictly rely on history and say nothing about what the company will do in the future. Beta can be useful in the short term for measuring the risk of a stock price if it fluctuates in a way that we might not be comfortable with.
Conclusion
Get your financial information from the same source if you are comparing companies. This way, you know that the data collection and analysis are consistent. Beta is useful for determining the likelihood of price volatility in the near term, but it is not as reliable when looking at the long-term picture.
Source: https://www.thebalancemoney.com/betas-aid-in-stock-trading-but-which-beta-do-you-use-3141356
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