Beta

Beta compares the returns of one asset with the returns of a benchmark, usually a broad index. It is the covariance of the two return series divided by the variance of the benchmark's returns, computed over a stated window from returns of a stated interval. A beta of one describes an asset that has on average moved with the benchmark, a beta above one describes larger moves than the benchmark's, a beta below one smaller ones, and a negative beta an asset that has on average moved against it.

Beta captures only the part of a return that varies with the benchmark. Everything specific to the company or the fund sits outside the number, so two shares carrying the same beta can have very different total volatility. It is also not a statement about direction, since a beta above one describes larger moves in both directions and says nothing about which one occurred.

Every beta is an artefact of its inputs. The window, the return interval and the choice of benchmark each change the answer, which is why the same share carries different published betas at the same moment from different providers. Beta is backward looking by construction and unstable for individual companies, so it is applied more confidently to portfolios and funds than to single shares, and practitioners disagree about whether it belongs in a risk assessment at all.