Beta Concept in market
*Beta is indicator of an Investment's Systematic Risk(i.e.It is concerned at Macro level of economy, Uts represents risk at economy level).
* It represents systematic risk associated with an investments in relation to Total risk associated with market portfolio.
*If a beta is 1.5 it does not mean that systematic risk of security is 1.5 it means security is 1.5 riskier as compared to the market as whole.
*Suppose that the beta value of a security is 1.2, it means that if return of market portfolio varies by 1%, the return from security is likly to be varied by 1.2%.
* Therefore , this security is riskier than the market bcz we expact that its return to fluctate more than market on a percetage basis.
* A security with beta grater then 1 is called Aggressive security.
* A Security with beta less then 1 is called Defensive Security.
* And a security with beta equal to 1 is called Netural Security.
Beta =
Co-variance between Return from market and those from security.
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Varience of Market portfolio
* Varience of Market portfolio= 1(taken always - assumption)
Co varience = Sum of XY/n,
where X= (X-mean of X) , Y = Y-mean of Y, (X & Y are two variable)
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