Beta is a relative measure of the sensitivity of portfolio return to changes in the benchmark return.  The Beta (or Slope) between two portfolios is the amount the first portfolio moves when the other moves by one unit.  For example a beta of 0.5 implies that if the benchmark goes up 1% the portfolio goes up 0.5%.  If the benchmark goes down 1% the fund goes down 0.5%.

The general rule: Beta >1: The fund is more volatile that the benchmark. Beta <1: The fund is less volatile than the benchmark.

The value of the Beta is given by the slope of the regression line.  The line shows the likely return of one fund dependent on the return of the other, e.g. the relationship between two sets of data.

Share this article