Measure how much a holding moves relative to the market, and the market risk it contributes.
Beta is the slope of a regression of the asset against the market. Feeding it into the capital asset pricing model gives the return the market would require for that level of systematic risk. Beta measures only market risk, so a high-beta holding in a diversified portfolio is a very different proposition from the same holding held alone.
Beta
Beta = covariance with the market ÷ variance of the market
Beta = covariance with the market ÷ variance of the market Beta is the slope of a regression of the asset against the market. Feeding it into the capital asset pricing model gives the return the market would require for that level of systematic risk.
Beta measures only market risk, so a high-beta holding in a diversified portfolio is a very different proposition from the same holding held alone.
This calculator takes 4 inputs: Covariance with the market, Variance of the market, Market return, Risk-free rate. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.