Term Glossary

Metrics, Models & Concepts

Beta


Beta is determined by taking the covariance of asset returns with the market index and dividing it by the variance of market index according to Single-Index Model: \begin{equation} \beta_i=\frac{Cov(r, r_{M})}{Var(r_{M})} \end{equation}

\(r\)
asset return
\(r_{M}\)
market index (benchmark) return

Beta measures the degree to which different portfolios are affected by systematic risks compared to the effect on the market as a whole. Beta could be used as an indicator of how much asset returns co-move with the rest of the market. Large positive beta of 1.5 would imply that for every dollar of return gained (lost) by the market index, this asset would on average gain (loose) $1.5.


Function Reference
portfolio_beta, position_beta