Beta (finance)

From Simple English Wikipedia, the free encyclopedia

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]

  1. "Beta". Investopedia. Retrieved 2022-04-23.
  2. "Beta Coefficient". Corporate Finance Institute. Retrieved 2022-04-23.