Beta

Definition

Beta compares the volatility of the portfolio with the volatility of the benchmark (market). A beta of 1 implies the portfolio moves in line with the market, while a beta greater than 1 indicates higher volatility, and a beta less than 1 indicates lower volatility compared to the market.

Formula

$\beta = \frac{{\text{{Covariance}}(R_p, R_b)}}{{\text{{Variance}}(R_b)}}$

where $R_p$ is the portfolio return and $R_b$ is the benchmark (market) return.