What are Alpha and Beta Coefficients in the Stock Exchange?
In the stock market, the alpha and beta coefficients are important indicators that investors use to measure and manage the risks in their portfolios. The alpha coefficient indicates the extra earnings a security brings regardless of market risk. The beta coefficient indicates the sensitivity of a security to market movements.
The alpha coefficient expresses the return that exceeds or falls below the expectations of the investor. If the alpha coefficient is positive, the investor has earned more than the market average. If the alpha coefficient is negative, the investor has earned or lost less than the market average. If the alpha coefficient is zero, it means that the investor has earned the same return as the market average.
The beta coefficient indicates how well a security adapts to the general movement of the market. If the beta coefficient is 1, the price of the security changes at the same rate as the market. If the beta coefficient is greater than 1, the price of the security changes more than the market. If the beta coefficient is less than 1, the price of the security changes less than the market. If the beta coefficient is negative, the price of the security changes in the opposite direction of the market.
Alpha and beta coefficients help investors evaluate the performance and risk of their portfolios. Investors can diversify their portfolios according to alpha and beta coefficients, establish a risk-return balance, and determine investment strategies that meet their expectations.