Beta

Question 1

Formula for Beta

Answer 1

Question 2

Alternative Beta Formula

Answer 2

Question 3

What does beta tell you ?

Answer 3

It quantifies the systematic risk (market-related risk) of an asset:

How sensitive the asset is to market movements

How it contributes to the volatility of a diversified portfolio

Question 4

Beta = 1

Answer 4

Asset moves in line with the market.

If market goes up 1%, asset goes up 1% (on average).

Systematic risk = equal to market risk.

Fully exposed to market movements.

Question 5

Beta > 1

Answer 5

Asset is more volatile than the market.

If market rises 1%, asset rises more than 1% (and vice versa).

High systematic risk.

Question 6

Beta < 1

Answer 6

Asset moves with the market, but less strongly.

Lower systematic risk.

Question 7

Beta = 0

Answer 7

No correlation with market movements.

Purely idiosyncratic risk.

Return is independent of market → zero systematic risk.

Question 8

Systematic vs Unsytematic Risk

Answer 8

Question 9

Be sure do know the difference between Variance and Std Deviation

Answer 9

I have to split the variance into sys risk to calculate beta

Question 10

Sys vs unsy risk formula and variance

Answer 10