Beta (Coefficient)
| A beta coefficient is a tool that measures the volatility of a single asset in relation to the volatility of the entire market or a specific portfolio. This measurement can be used to compare the risk of an investment, and is an important part of modern portfolio theory. The beta coefficient is calculated by taking the covariance of the asset's returns with the market's returns, and dividing it by the variance of the market's returns. This ratio measures how much an asset's price moves in relation to the market as a whole. A high beta means that the asset is more volatile than the market, while a low beta means that it is less volatile. The beta coefficient is a useful tool for measuring risk, but it is important to remember that it is only one part of the picture. Other factors, such as the standard deviation of an asset's returns, must also be considered when making investment decisions. |
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