Beta Coefficient

Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient is an important input in the capital asset pricing model (CAPM). The beta is the degree of change in the outcome variable for every 1 unit change in the predictor variable. A standardized beta compares the strength of the effect of each individual independent variable to the dependent variable. The greater the absolute value of the beta coefficient, the stronger will be the impact.

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