Abstract
In the CAPM formula, Beta or β represent the relative risk of stock which is related to the market. It is a key parameter in the CAPM formula because it will permit to measures the risk of the company compared to the risk of the overall market. The stock risk of the market is representing by a Beta of 1.0 and if the Beta of the company is superior to 1.0 that means that the stock of the company is more risky than the average market and if the Beta is inferior to 1.0 that means that the stock is less risky than the market average.
We know that a high beta stock is more risky but could provide a high potential of returns and if the beta is low it is less risky but also with a lower return.
Some types of stocks have a high or low beta. For example, luxury's product will have high beta and food's product have a low beta.
