Beta

Investments

Beta measures a stock or fund's volatility relative to the market (benchmark). Beta of 1 = moves exactly with market. Beta > 1 = more volatile than market. Beta < 1 = less volatile. High beta stocks amplify market moves in both directions.

In detail

Beta examples:nNifty 50 Beta: 1.0 (by definition)nLarge private bank: typically 1.1-1.4 (more volatile)nFMCG stock: typically 0.5-0.8 (defensive, less volatile)nSmall cap stock: can be 1.5-2.5+ (highly volatile)nnPortfolio use: in a rising market, high beta positions amplify gains. In falling markets, they amplify losses. Conservative portfolios target portfolio beta 1.nnDebt funds: near-zero beta (uncorrelated with equity market)

Formula

Beta = Covariance(Stock, Market) / Variance(Market)nPortfolio Beta = Weighted average of individual stock betasnExpected return: Risk-free rate + Beta x (Market return - Risk-free rate)

Real-life example

🇮🇳 India example

Meena's portfolio: 50% large-cap (beta 1.1) + 30% mid-cap (beta 1.4) + 20% debt (beta 0.1). Portfolio beta = 0.5x1.1 + 0.3x1.4 + 0.2x0.1 = 0.55+0.42+0.02 = 0.99. Approximately market-correlated portfolio. If Nifty falls 20%: portfolio expects to fall approximately 19.8%.

Frequently asked questions

Is low beta better than high beta? ▼
Depends on market phase. In bull markets: high beta amplifies gains. In bear markets: high beta amplifies losses. Low beta provides stability but underperforms in strong rallies. Choose beta based on your market view and risk tolerance, not as an absolute good or bad.