Beta

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A measure of market risk.

Beta can refer to the market risk for a single financial asset or to an entire portfolio. By definition, the beta of the whole market is one.

Therefore a beta of greater than 1 means that, on average, the asset is expected to increase in value by more than the market when the market is rising – and to reduce in value by more than the market when the market is falling. An asset with a beta less than 1 is expected - on average - to increase and to reduce in value by less than the market.

Beta for a security can be calculated for historical periods using regression analysis. The historical beta is the slope of the line of best fit comparing the historical returns on the individual security with those of the market as a whole.

See also