Performance & risk

Beta

Historical sensitivity to movements in a chosen market benchmark.

01 / Definition

What Beta Means

Beta estimates how strongly an asset's returns have moved with benchmark returns. It measures systematic exposure relative to that benchmark, not total risk.

02 / Calculation

Beta Formula

β = Cov(Rₐ, Rₘ) ÷ Var(Rₘ)

03 / Worked Example

How to Read the Result

Covariance of 0.018 and benchmark variance of 0.012 produce a beta of 1.50. That is an average relationship, not a daily rule.

04 / Boundaries

Limitations

It is backward-looking and regime-dependent.
An unsuitable benchmark misleads.
It omits idiosyncratic and nonlinear risk.

05 / Questions

Common Questions

Does beta of 1.5 guarantee a 1.5× move?

No. Beta is a regression estimate across observations, not a forecast for one period.