Beta (finance)
Beta is a financial measurement of an assets' sensitivity to a certain weight. Typically, this weight is the S&P 500.[1] Beta uses past performance, and cannot predict future results.
Examples
[change | change source]- Rio Tinto has a beta of 0.55 (On NYSE), meaning that if the S&P 500 moves up 20%, theoretically, Rio Tinto moves up 11%.
- The SARK ETF has a beta of -2. If the market drops by 6%, SARK may go up 12%.
Formula
[change | change source]Beta is calculated by dividing the covariance of returns between the index, and the stock, to the variance for the index returns.[2]
References
[change | change source]- ↑ "Beta". Investopedia. Retrieved 2022-04-23.
- ↑ "Beta Coefficient". Corporate Finance Institute. Retrieved 2022-04-23.