Beta
A measure of how much an asset's return moves relative to the market's, on average.
Formula
Beta = Covariance of Asset and Market Returns / Variance of Market Returns
Unit
ratio (x, times)
In depth
A beta of 1 means the asset has historically moved in step with the market, above 1 means amplified, below 1 means damped. It measures only systematic risk, the part that cannot be diversified away, which is why the capital asset pricing model uses it rather than total volatility. Beta is estimated from past data over a chosen window and is unstable — the same stock can show a beta of 0.9 over three years and 1.4 over one. It also says nothing about company-specific risk, so a low-beta stock can still fall 60% on its own news.
Worked example
A portfolio with a beta of 1.3 would be expected to fall 1.3 x 20% = 26% if the market fell 20%. Hedging it with index futures requires 30% more contracts than the portfolio's rupee value alone would suggest.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Beta” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.