Could anyone explain me what is Beta and what it signifies (keeping away the mathematical details!
Hello rocky,
Let's have it this way. Suppose if a stock moves up by 30% when the market (/benchmark) moves up by 10%, would it be right if we say that the stock has outperformed the market because of it's implicit strength compared with the market, or is this out performance simply an outcome of higher volatility?
Putting it in other words, suppose you have a portfolio which has outperformed the market by the same ratio. Can this out performance be attributed to your stock selection and fund allocation skills, or simply a question of having more volatile stocks than the index?
If it is simply (and purely) a case of choosing stocks with higher volatility, then if the market moves down by 10%, it is highly probable that the portfolio will move down by ~ 30% too.
Note that beta measures only the systematic risk of the stock. There might be company/stock specific factors (unsystematic risk) which affects returns too.