ThE hAnDbook of TEChnICAl AnAlysIsstock beta
Stock beta is derived from the statistical regression of a particular stock’s returns
against the market. It describes the relationship between stock and market re-
turns. Here are the some of the characteristics associated with beta:■ (^) When beta = 0, the stock returns tend to be uncorrelated with market returns
and the stock moves independently of the market
■ (^) When beta < 0, the stock tends to move in the opposite direction of the market
■ (^) When 1 > beta > 0, the stock returns tend to underperform the market, but the
stock moves in the same direction as the market
■ (^) When beta = 1, the stock returns tend to match the market and the stock
moves in the same direction as the market
■ (^) When beta > 1, the stock returns tend to outperform the market and the stock
moves at a greater rate than market
Therefore, if the stock beta = 0, the stock tends to be fairly unaffected by
market volatility, under conditions of normal market volatility. If the stock beta
is relatively high, say at a value of about 3 to 5, the stock will experience greater
volatility than the market.
21.3 oTher Measures of MarkeT VolaTiliTy
There are a few other measures of gauging market volatility. One popular ap-
proach is by referencing a volatility index, one of which is the VIX. The VIX
is usually referred to as the fear index. It gauges the sentiment of the market
participants and measures the amount of bullishness or bearishness in the mar-
ket based on the market participants’ option activity and the implied volatilities.figure 21.24 Using a 2‐Sigma ATR Filter to Size a Stoploss on the Hourly EURUSD
Chart.
Source: MetaTrader 4