What is beta?

Beta (β) is a measure of the volatility, or systematic risk, of a security or portfolio of securities compared to the market as a whole. To be more precise, it measures how much an asset's price moves up and down in comparison with movements in its benchmark index.

How beta is calculated?

Beta (β) can be calculated by measuring the covariance between returns on the security and returns on a market index divided by the variance of the market index over a certain period of time. Specifically, Beta is used to assess how much an asset may move in relation to changes in its underlying benchmark.

High Beta and Low Beta

A high beta means that an asset’s price tends to be more volatile than average and move more dramatically when compared to its benchmark. On the other hand, if a security has a low beta then its price movement is less sensitive when compared to that of its benchmark index.

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