I use Beta-based expected return to calculate and understand potential capital appreciate (or cash flow) from a given stock.
In today’s post, I am discussing the concept of stock’s beta value and how it helps us understand stocks expected returns.
What is Stock’s Beta Value?
In its simplistic form, beta is a measure of any individual stock’s risk (or movement) relative to the overall stock market risk (or movement). I measure Beta of any given stock relative to the S&P CNX NIFTY. Here, I am trying to understand how a stock price behaves relative to the market and how to factor in the capital appreciation into my expected returns. We can calculate Beta either using daily return (i.e. daily pricing) or on monthly returns (monthly pricing). The results should be the same because it is the on relative basis. Continue reading rest of this article…