Beta (finance)

Beta is a financial measurement of an assets' sensitivity to a certain weight. Typically, this weight is the S&P 500. Beta uses past performance, and cannot predict future results.

Examples

• Rio Tinto has a beta of 0.55 (On NYSE), meaning that if the S&P 500 moves up 20%, theoretically, Rio Tinto moves up 11%.
• The SARK ETF has a beta of -2. If the market drops by 6%, SARK may go up 12%.

Formula

Beta is calculated by dividing the covariance of returns between the index, and the stock, to the variance for the index returns.