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What is Beta?
Beta is a measure of an asset/portfolio returns sensitivity when compared to the markets return. In other words it gives you a measure on how an asset’s return will be similar to that of the market. The beta templates in this marketplace are great tools in assisting you with the calculation of Beta.
The beta coefficient can be interpreted as follows:
β =1 exactly as volatile as the market
β >1 more volatile than the market
β <1>0 less volatile than the market
β =0 uncorrelated to the market
β <0 negatively correlated to the market
The following video has further information on the Beta Coefficient:
Beta and CAPM
Beta is also used as a measure of risk and is an integral part of the Capital Asset Pricing Model (CAPM). A company with a lower beta typically has lower risk but also has lower expected returns. The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between expected return and risk of investing in a security. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. Check out the Catalog of Beta Templates and Tools to take your financial analyst skills to the next level.