The biggest drawback to beta is that it's a backward-looking number. Like any historical measure, it can show you the pattern so far but it can't tell you what's going to happen in the future.<\/p>
The second caveat is that beta is a measure of systematic risk<\/a>, which is the risk that the market faces as a whole. The market index<\/a> to which a stock is being compared is affected by market-wide risks.<\/p> The fix for that problem is to compare a stock's beta to that of its peers to see how volatile it is within its industry or sector.<\/p>"
}
}
,
{
"@type": "Question",
"name": "What Is a 'Bad' Beta?",
"acceptedAnswer": {
"@type": "Answer",
"text": " A bad beta is determined by the investor who's looking at the number.<\/p> A very conservative investor might avoid any stock with a beta of more than 1, as it could indicate an unacceptable degree of risk. A very aggressive investor might look at only those stocks with a beta above 1, while doing some additional research to determine whether there's more upside than downside in its past and its potential future performance.<\/p>"
}
}
,
{
"@type": "Question",
"name": "What Else Does 'Beta' Mean?",
"acceptedAnswer": {
"@type": "Answer",
"text": " The word beta has long been used by technology companies to describe the first wide release of software products for testing.<\/p> Beta also is slang for a weak person, according to Dictionary.com.<\/span><\/p> Beta is the second letter in the Greek alphabet.<\/p>"
}
}
]
} ] }
]