What is 'Beta Risk'
Beta risk is the probability that a false null hypothesis will be accepted by a statistical test. This is also known as a Type II error. The primary determinant of the amount of beta risk is the sample size used for the test. The larger the sample tested, the lower the beta risk becomes.
BREAKING DOWN 'Beta Risk'
An interesting application of hypothesis testing in finance can be done using the Altman Zscore. The Zscore is a statistical model meant to predict the future bankruptcy of firms based on certain financial indicators. Statistical tests of the accuracy of the ZScore have indicated relatively high accuracy, predicting bankruptcy within one year. These tests showed a beta risk (firms predicted to go bankrupt but did not) ranging from approximately 15 to 20%, depending on the sample being tested.

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Active Trading Fundamentals
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When you're indecisive about an investment, the best way to keep a cool head might be test various hypotheses using the most relevant statistics. 
Stock Analysis
Build Diversity Through Beta
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Fundamental Analysis
What is a Null Hypothesis?
In statistics, a null hypothesis is assumed true until proven otherwise. 
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Learn how the bet against beta strategy is used by a large hedge fund to profit from a pricing anomaly in the stock market caused by high stock prices. 
Personal Finance
How To Calculate Beta Of A Private Company
We explain two methods for calculating the beta of a private company. 
Stock Analysis
Build Diversity Through Beta
Learn how mixing high and low beta stocks from the Dow can be the first step in creating a diversified portfolio. 
Fundamental Analysis
What's a ZScore?
In statistics, Zscore refers to how many standard deviations a particular data point is from the mean of the data. A Zscore of 1 means the data point is one standard deviation from the mean. ... 
Investing Basics
What is a Security Market Line?
The security market line graphs the systematic risk versus return of the whole market at a certain time, and shows all risky marketable securities. 
Investing Basics
Calculating Beta: Portfolio Math For The Average Investor
Beta is a useful tool for calculating risk, but the formulas provided online aren't specific to you. Learn how to make your own. 
Fundamental Analysis
Explaining Standard Error
Standard error is a statistical term that measures the accuracy with which a sample represents a population.

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When is it better to use unlevered beta than levered beta?
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What's the difference between a representative sample and a random sample?
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What kinds of securities are influenced most by systematic risk?
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