Beta
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Beta | = | CovarianceVariance |
Beta In A Nutshell
If you’re looking to measure risk, Beta is the Greek data point you want to use. When building a portfolio or looking at ETF products, a good way to judge how the risk factor may be is to compare Beta levels. If you want a portfolio that tracks the market, then you want it to be closer to 1, but if you are looking for more volatility, then you can exceed the 1 market for greater movements when the market moves.
Beta is the measurement of how an equity or product moves with the underlying instrument it is attached with. Beta is measured as follows, if a product has a Beta of 1 or above, than the product is more volatile, but if it falls below 1, it will be less volatile. When a Beta is at 1, that means it will move in rhythm with the asset it is tied with. For example, the ETF ticker SPY that follows the S&P 500 will have a Beta near 1 because it is supposed to follow the S&P 500 Index. Conversely, if you invest in an inverse ETF, it will likely be near a 0 Beta because it moves in the opposite direction of the market it is intended to follow.
Closer Look at Beta
There are other means to measure risk such as fundamental analysis, which can give you insight to any issues that could b arising. Also, you can just look and analyze a chart using indicators and technical analysis to determine the possible risk at your point of entry. Not only is there Beta, but there are many other Greek symbols that can be used, but be sure to read up on what each one means. If you ever get stuck, reach out to an investing community and then can help to explain it and help you through any misunderstandings.
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