Beta
What is \(\beta\) (beta) and what does it mean?
Answer
\(\beta\) measures the systematic risk of a portfolio, i.e. the part of risk that cannot be diversified away. More specifically,
\[
\beta=\frac{\mathrm{Cov}(R_p,R_m)}{\mathrm{Var}(R_m)},
\]
where \(R_p\) is the portfolio return and \(R_m\) is the market portfolio return.