Beta (finance)

Beta (finance)

In finance, the Beta (β) of a stock or portfolio is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500.

Some interpretations of beta are explained in the following table:

Value of Beta	Interpretation	Example
β < 0	Asset generally moves in the opposite direction as compared to the index	Gold, which often moves opposite to the movements of the stock market
β = 0	Movement of the asset is uncorrelated with the movement of the benchmark	Fixed-yield asset, whose growth is unrelated to the movement of the stock market
0 < β < 1	Movement of the asset is generally in the same direction as, but less than the movement of the benchmark	Stable, "staple" stock such as a company that makes soap. Moves in the same direction as the market at large, but less susceptible to day-to-day fluctuation.
β = 1	Movement of the asset is generally in the same direction as, and about the same amount as the movement of the benchmark	A representative stock, or a stock that is a strong contributor to the index itself.
β > 1	Movement of the asset is generally in the same direction as, but more than the movement of the benchmark	Volatile stock, such as a tech stock, or stocks which are very strongly influenced by day-to-day market news.

It measures the part of the asset's statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index.