Let’s learn how to use Beta when evaluating stocks and making investment decisions 💰

Let's look at two stocks, Stock A and Stock B 📊

Stock A has a Beta of 0.5 and Stock B has a Beta of 1.5. 🤔

This means that Stock A is less volatile than the market and Stock B is more volatile than the market ⚖️

Want to know how we interpreted that? ✋🤔

Here’s the key for understanding beta ➡️

If Beta = 1️⃣ the stock is EXACTLY as volatile as the market

If Beta < 1️⃣, the stock is less volatile than the market

If Beta > 1️⃣, the stock is more volatile than the market

But you might be wondering: based on the Beta, which stock is "better"?

Well, there really isn't a "better" stock, there just might be one that's better for your portfolio and risk tolerance!

If you're okay with your portfolio going up and down more often, you might pick Stock B, but if you prefer more stable returns, Stock A might be your choice.

Also, it's possible for a stock to have NEGATIVE beta!

This means the stock tends to move in the opposite direction of the stock market as a whole 📉

However, Beta only measures the HISTORICAL volatility of a stock and can't predict how volatile a stock will be in the future!

So when analyzing stocks, make sure to use Beta alongside other stock numbers 🔭