What beta measures
Beta compares a stock's moves with the market index's moves over a past period. The index should suit the stock; FoudaLens calculates beta against the EGX30. A beta of 1 means the stock moved roughly like the index on average. Above 1: more sensitivity to the market in the same direction, historically. Between 0 and 1: less sensitivity in the same direction. Near 0: weak linear sensitivity to the index. Negative: the stock historically tended to move against the index.
Market risk you cannot diversify away
Some risks belong to each company, and diversification reduces those. Others touch the whole market, such as changes in interest rates or the economy; that is market risk. However widely you spread your money, if the whole market falls most of the portfolio feels it. Beta describes how sensitive a stock is to that kind of risk.
What beta does not tell you
In the deep analysis of any stock on FoudaLens, available to subscribers, you will find beta calculated against the EGX30 index. Use it as information about the stock's sensitivity, alongside the other figures, not on its own.
Watch the index
Open the indices page and set the EGX30 beside a stock you follow over the same days, as a reference, not a verdict.
Check yourself
1. As a simplification of sensitivity, other factors held constant: a stock has a beta of 2 and the index falls 1%. What corresponds to that for the stock?
2. A stock has a positive beta between 0 and 1, such as 0.5. What does that mean?
Summary
- Beta describes how much a stock moved relative to the index, on average.
- Market risk touches most stocks together, and diversification does not remove it.
- Beta comes from the past, does not measure all risk, and does not predict what comes next.