Goodman's Beta refers to the measure of systematic risk of a security or a portfolio in relation to the market as a whole. It is derived from statistical analysis, typically using the capital asset pricing model (CAPM) to estimate the expected return based on the risk-free rate, the security's beta, and the expected market return. The beta value indicates how much the security’s price moves in relation to the market's movements. A beta greater than 1 indicates increased volatility compared to the market, while a beta less than 1 suggests lower volatility. Goodman’s Beta would be used to compare the company’s stock performance against the overall market index. In the provided context, the calculation of beta is essential for estimating expected returns, which involve inputs such as the risk-free rate and market risk premium.
