REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Beta
Relative calculation: Examples
To illustrate,
we can look at some hypothetical examples of extreme situations.
- The
share price does not change, giving a beta relative of zero.
- The
Index does not change, giving a Beta relative of infinity.
- The
share price moves by exactly the same percentage as the
Index, and consistently in the same direction, i.e. the
share price is exactly as volatile as the market index.
This gives a beta relative of 1.00.
- The
share price moves by exactly the same percentage as the
Index, but consistently in the opposite direction, i.e.
the share price is exactly inversely volatile against the
Index. This gives a beta relative of -1.00.
- The
share price is 1.5 times more volatile than the market index,
i.e. the price moves consistently in the same direction
as the market index, but on average moves 50% further. This
gives a beta relative of 1.50.
- The
share price is 0.75 times as volatile as the market index,
i.e. the price consistently moves in the same direction
as the market index, but on average moves 25% less. This
gives a beta relative of 0.75
The examples
above feature prices which behave consistently relative to the
Index, but not always in the same direction. In real-life, the
average effect over time can be similar, and it is this overall
picture which the beta relative serves to measure.
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