2) Calculate the capital cost and formulate performance appraisal and incentive standards;
3) Calculate the cost of capital and evaluate assets (beta is the basis of discounted cash flow model);
4) Determine the systemic risk of a single asset or portfolio for portfolio investment management, especially the hedging (or speculation) of stock index futures or other financial derivatives. The discussion about the fourth use of Beta will be the focus of this article.
Combination β
Beta coefficient has a good linear property, that is, portfolio.
Beta equals that of a single asset.
The result of weighted summation of β coefficients according to their weights in the combination.
5) The application of beta coefficient in the securities market.
Beta coefficient reflects the sensitivity of individual stocks to market (or broader market) changes, that is, the correlation between individual stocks and broader market or "stock" in popular parlance. Securities with different beta coefficients can be selected according to the market trend forecast to obtain additional income, which is especially suitable for band operation. When a big bull market or a non-rising stage of the market is predicted with confidence, you should choose those securities with high beta coefficient, which will multiply the market yield and bring you high returns; On the contrary, when a bear market comes or a certain decline stage of the market comes, you should adjust your investment structure and choose those securities with low beta coefficient to resist market risks and avoid losses.