Beta In StocksCafe, all beta shown is computed with linear regression using data from the last 3 years against The Market.
Beta can be used to measure how a stock or portfolio is likely to respond to changes in The Market.

For example, stocks with beta equal to 1 would have their prices move in tandem with The Market. That is, if The Market goes up by 3%, they are also likely to go up by about 3%. If The Market goes down by 5%, they are likely to go down by about 5% too.

Conversely, stocks have negative beta would have their prices move opposite of The Market. For example, if a stock has a beta of -1, when The Market goes up by 3%, it is likely to go down by around 3%, and when The Market goes down by 5%, it is likely to go up by around 5%.

As for stocks with beta close to 0, changes in The Market are less likely to affect them. That is, whatever changes there are to The Market has no effect on their prices.

How about stocks with beta greater 1? If a stock has beta of 5, whenever a The Market goes up by 3%, it is likely to go up by around 15%. And when The Market goes down by 5%, it is likely to down by 25%!

If you are able to follow up till this point, I believe you would be able to deduce what the likely scenarios for stocks with beta lesser than -1 (e.g. -5) would be.

Of course, the stock market is more unpredictable than the scenarios that we have discussed above. While the magnitude is not that predictable, the direction of movement is generally correct, especially if you are looking at a longer period of time and against high liquidity stocks.

Generally, beta close to 0 is preferred because it means the portfolio is less affected by market movements.

What is The Market?
Since StocksCafe supports multiple markets and users' portfolio often includes stocks from various markets, we have decided to define The Market to be a weighted average based on individual user's portfolio of various index ETFs.

For example, if you have two stocks in your portfolio, Apple Inc (listed in USX) and DBS Bank (listed in SGX), and you have SGD 5,000 worth for each of them. Then your beta is computed against a weighted index made up of 50% USX:SPY and 50% SGX:ES3.


More Technical Definitions