Beta

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Beta measures the price volatility of the portfolio in comparison to a specific benchmark, such as the S&P 500.[1][2]

For example:

  • A portfolio that has a beta of 1 should increase 10% when market prices increase 10%.
  • A fund with a beta of 1.10 is expected to perform 10% better than the market in a rising market, but 10% worse in a declining market.
  • A portfolio with a beta of less than 1.0 indicates that it is less volatile than the market or index.

Another example:

A fund with a beta of 0.7 has experienced gains and losses that are 70% of the benchmark's changes. A beta of 1.3 means the total return is likely to move up or down 30% more than the index. A fund with a 1.0 beta is expected to move in sync with the index.[3]

References

  1. "Hedge fund terms”. Liberty Gateway.
  2. "Glossary”. Russell.
  3. "Hedge Fund Glossary ”. Hedge Fund Lounge.