Beta

Beta (β) measures how much an asset's returns move with the overall market. A beta above 1 is more volatile than the market, below 1 less. Only this systematic risk earns a return premium in the CAPM.

ByHoang TruongUpdated June 30, 2026

FrameworkCAPM

See it move

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Beta measures how sensitive an asset's returns are to the market as a whole. Plotting the asset's historical returns against the market's and fitting a line, the slope of that line is beta: a beta of 1 tracks the market exactly, above 1 amplifies its swings, and below 1 dampens them. Only this systematic risk earns a CAPM premium.

Where it fits

TopicRisk, Return & the CAPMCoreSubjectCorporate FinanceCore

The formula

LaTeX

\beta_i = \frac{\text{Cov}(R_i,\, R_m)}{\text{Var}(R_m)}

Variables

$β$: Beta of asset i (ratio)
$R_{i}$: Return on asset i (decimal)
$R_{m}$: Return on the market portfolio (decimal)
$C o v (R_{i}, R_{m})$: Covariance of asset and market returns (—)
$V a r (R_{m})$: Variance of market returns (—)

β = 1 moves with the market; β > 1 amplifies swings; β < 1 dampens them.

Check yourself

PracticeCORE

A share has a beta of 0.6. If the overall market rises by 10%, which of the following best describes the expected change in this share's return?

Select an answer to check your understanding.