"Unlocking Stock Market Insights: A Comprehensive Guide to Beta Analysis"- Part 2

Beta (or beta coefficient) gauges a stock's exposure to both systematic and unsystematic market risks. It assigns a numerical number that sheds light on stock price movements in relation to market developments. Beta is a valuable statistical technique for calculating stock volatility.

Having seen what Beta does or what beta measures, we harp on the questions of unidirectional sensitivity. Are there any firms that exhibit a different sensitivity during bull periods compared to bear periods? An analysis like the above shall be insightful in categorizing stocks into four buckets.

Loser Stocks – One should not go for Loser Stocks, as they give very low returns & possess high risks.

Sluggish Stocks – One with a very conservative risk profile should go for these types of stocks as they carry less risk, but returns are also less compared to active stocks.

Active Stocks – Someone with a high-risk profile can go for these types of stocks as they carry High Risks & High Rewards for Investors.

Winner Stocks – These are types of stocks that carry very less risk & give high returns to their Investors. Not many stocks in this category are found.

We tried to apply this framework to NIFTY 50 stocks. We sourced the share price data from the Bombay Stock Exchange. The research focuses on 50 equities from various industries. They are all actively traded and classified as A class on the BSE. The research looks at 6 periods of bull run (market rises > +10%) and 6 periods of the bear run (market falls > -10%).?

Closing stock prices of the Nifty 50 Index and Nifty 50 stocks for these periods are used to calculate the returns during the period. Nifty 50 is taken as a proxy to market throughout the study. The stock Beta is calculated using the Slope function in MSEXCEL (=SLOPE (Returns of Stock, Returns of Market).

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