Could you give me an example with a beta to understand what it actually shows?

Question

Could you give me an example with a beta to understand what it actually shows?

Answer 1

http://www.investopedia.com/terms/b/beta...

It is the ratio of returns of a stock (not the price of a stock) to the returns of the market index, usually the S&P 500.  The returns are measured in months, usually over 3-5 years.  But there is no standard time frame.

Answer 2

The beta tells  you how sensitive a stock is to the movements of a stock market index.

Let's look at the Yahoo stock, which has a beta of 1.18 versus the S&P 500 index. Say the "market", i.e. the S&P index, moves up by 10%. A beta of 1.18 means that Yahoo's stock is expected to move 1.18 times 10% or 11.8% on average. The same applies to the downside.

Microsoft's stock, on the other hand, has a beta of 0.87. So, when the "stock market" moves up by 10%, Microsoft is expected to move by 10% times 0.87 or 8.7%, i.e. less than the market.

To sum it up, a beta of more than 1 means that a stock is expected to have larger moves than the stock index to which the beta refers. A beta of less than 1 means that a stock is expected to have smaller moves than the index. And a beta of 1 means that the stock is expected to move as much as the index.