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Beta


Definition

This is a measure of the sensitivity of a specific security or a basket of securities (portfolio) to movements in the overall market.

Using the term Beta :

For example, if the Beta of a particular security is 0.9 then it is slightly less volatile (or some would say less risky) than the overall market. If it is 1.1, then it is slightly more volatile (or more risky) than the overall market. Beta is a key component of CAPM - the capital asset pricing model.

Pay Special Attention To :

Alpha is the excess return available beyond Beta. Alpha is earned by a manager displaying skill in trading or investment analysis. Alpha costs more in fees, while you should not need to pay very much for Beta returns as they are readily available in index funds that represent the return of the market. Beta investing is a low-cost investment approach. One highly advocated by some mutual fund groups like Vanguard.

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Related terms

Alpha , Performance Fee

'Beta' appears in these other terms:

Alpha and Beta Separation Country Beta Yield Beta 

'Beta' appears in the definitions of these other terms:

Alpha Research Capital Asset Pricing Model CAPM Country Beta Hedging Yield Beta