What is Beta Coefficient: Definition & Meaning Explained

Definition of Beta Coefficient

Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.

The formula to calculate the Beta coefficient is:

Beta (β) = Covariance (Ri, Rm) / Variance (Rm)

Where:

Ri = a stock's return
Rm = overall market's return
Covariance = ups & downs of stock returns versus ups & downs of market returns
Variance = the difference between market returns and its average

Generally, Beta values are of four types:

Beta < 1.0: stock less volatile than the market
Beta = 1.0: stock just as volatile as the market
Beta > 1.0: stock more volatile than the market
Negative Beta: stock shares inverse relation with the market

At The Money

At The Money is a scenario in which the strike price of an options contract is the same as the market price of its underlying security.

Exercising an option At The Money can lead to a loss as the premium paid for the contract won’t be recovered.

That said, At The Money is known to be a positive indicator as it indicates the option may soon have intrinsic value.

Equity Delivery

In equity delivery, shares are delivered to an investor’s Demat account after the settlement period. That’s why it is called equity delivery. However, equity delivery is also known as delivery trading and long term investing.

For example, let’s say you place an order for 10 HDFC shares on Tuesday with a view of holding onto them for the long term. The trade will be settled on Thursday shortly after which the shares will be delivered to your Demat account.

Abandoned Baby Pattern

An Abandoned Baby Pattern is a type of candlestick pattern that signals the reversal of a bullish or bearish trend. It is made up of three candles, each of which varies based on the trend.

Bullish Abandoned Baby Pattern

Candle #1: Red in color & forms during a downward trend
Candle #2: Forms a Doji Star below Candle #1’s closing price
Candle #3: Leads to a bullish trend & forms above the Doji Star (similar size to Candle #1)

Bearish Abandoned Baby Pattern

Candle #1: Green in color & forms during an upward trend
Candle #2: Forms a Doji Star above Candle #1’s closing price
Candle #3: Leads to a bearish trend & forms below the Doji Star (similar size to Candle #1)

Derivative

A derivative is a financial contract that is designed to derive its value from a single or group of underlying assets, generally between two parties or more. It contains a pre-agreed date of delivery and price.

The most common examples of a derivative contract are:

Futures
Options
Forwards
Swaps

A derivative can be bought and sold on an exchange or over the counter. Since derivatives derive value from underlying assets, their price is known to fluctuate when the underlying asset gains or loses value.