Beta Definition
According to the market as a whole (typically the S&P 500), beta (β) is a measure of a security or portfolio's volatility, or systematic risk. A stock can be considered to be more volatile than the S&P 500 if its beta is higher than 1.0. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
A stock's volatility can be compared to the systematic risk of the entire market using a beta coefficient. The slope of a line through a regression of data points is known statistically as beta. Each of these financial data points compares the returns of a specific stock to those of the overall market.
How we Calculate Beta
For Funds
The formula to calculate Beta for funds is:
For Portfolios
The formula to calculate Beta for portfolios is: