Beta

Beta denotes the inherent systematic risk or volatility in a security or group of securities. It measures the sensitivity of a financial instrument’s performance against the overall broad market performance.


Source: Tavaga Research


Example

If the beta of an asset is more than 1, it means the asset is more volatile than the broad market. If the beta is less than 1, the security is less volatile than the market. The value of 1 denotes the security has the same volatility as the market. 

Know more

If the broad market gave returns of 10 percent and the beta of the asset is 1.2, the returns on the asset will be 12 percent (10*1.2).
Beta is used with the CAPM model, which is a pricing model using only a single factor. The security market line (SML) is a graphical representation of the CAPM with beta.