MintGenie Explains: How Beta Index Measures Volatility in Stocks

Stocks that are affected by changes in the stock market are known as volatile stocks. They are exposed to both systematic and disorganized stock market risks. However, due to their high-risk, high return ratio, stocks with high volatility are much preferred and sought after in the financial market. Small and midcap equity shares Corporations are some examples of volatile stocks.

The benefits of investing in volatile stocks are obvious. Better returns are more likely. You will have a better chance of getting higher returns if you invest in highly volatile companies. In addition, volatility has an effect on net profit as well. In other words, if you want to make significant profits from trading and investing, you must be willing to increase your profit margin, and the only way to accomplish this is to take the risk of investing in companies that are prone to volatility. .

What is the role of beta index in identifying volatile stocks?

With the help of beta index, you can identify any volatile stock. It compares changes in the index Benchmark Indexes with Stock Market Influences The change in the price of a particular share. Since market volatility is proportional to changes reflected by large corporations, stocks with a beta value of 1 are generally considered a safe investment option.

A security that is comparatively more stable is a low beta stock, i.e. it has a beta rating below 1. A beta greater than 1 indicates significant volatility with market changes. As a result, it is seen as a risky investment instrument.

So, High beta stocks i.e. stocks with more than one beta value associated with volatile stocks. They are easily affected by minor changes in stock market indicators. In the current economic climate, every evidence of change raises concerns about the performance of the company. And as a result, there is a high demand in the market for acquisition or sale of these assets. Naturally, trading of such stocks becomes more volatile.

Large rewards on the upside are incredibly tempting, but if you take volatility into account, make sure you take into account the size of the losses as well. If you can see a significant potential for profit, imagine an even greater potential for loss.

High-risk investors who are knowledgeable about intrinsic value indicators and have a tendency to take risks can invest in highly volatile stocks to generate significant returns through capital gains. Investors should be able to read any changes in the stock market as they have a major impact on share prices. To avoid this, investors are always advised to do their proper research before investing in volatile stocks.

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