Good morning Allen, Re: BETA.......................................
BETA of 1.0000000 means that the investment in question is essentially
fully correlated with the market. So, it should move by a similar amount
and in the same direction as the market.
A high BETA (something greater than 1.0) means that the investment in
question moves in a highly correlated fashion but exceeds the market's
movement by a measurable factor. It will advance further and decline
more rapidly than the market but will do so in the same direction as the
market.
A low BETA (something smaller than 1.0) means the investment moves in a
non-correlated fashion. If the market is moving upward, then the
investment in question is usually moving downward or not at all. The
degree to which it moves opposite the market direction can be gauged by
the BETA value. In other words, a BETA of 0.95 means there is non-
correlation, but that the effect is small compared to the market. A BETA
of 0.65 would mean non-correlation but of a much more dramatic nature.
So, if one wanted to build a portfolio of several components with some
highly correlated and some non-correlated to the market one would have
a portion of them with BETAs greater than 1.0 and another portion with
BETAs less than 1.0. In theory this type of portfolio would have some
things doing well no matter what the market is doing.
