DaytradeTeam Brainzzzz

BETA is a way to measure an investment`s volatility, relative to an appropriate asset class. For stocks, the asset class is usually taken to be the S&P 500 index. For example, our Day Trading System will usually look for volitile stocks to scan, with a BETA of 2.00 or higher. On the other hand, our QQQQ Swing Trading System trades only the QQQQ. Because QQQQ is actually a tracking stock for the Nasdaq 100 index, its beta will be close to 1.00 (whichever direction the Nasdaq-100 is moving, the QQQ is moving in a similar amount).

The formula to calculate the beta of a stock is:
beta = [ Cov(r, Km) ] / [ StdDev(Km) ]2

where r is the return rate of the investment; Km is the return rate of the asset class. If the asset class is well chosen so that the return fluctuations of the investment and the class are highly correlated, then the formula approximates "the volatility of the investment divided by the volatility of the class." In other words, the higher the BETA, the more volitile the stock is when compared to the S&P 500 index.