Beta (β)
Sensitivity of an asset to moves in a benchmark — typically the broad market.
Definition
Beta measures systematic risk: how much an asset moves on average when its benchmark moves 1%. It is derived from the Capital Asset Pricing Model (CAPM). Beta of 1.0 means the asset moves in line with the market; 1.5 means 50% more sensitive (high-beta cyclicals, growth stocks); 0.5 means defensive (utilities, staples); negative beta means inverse correlation (rare — gold and the VIX during crises). Beta only captures linear, single-factor risk and is unstable through regime changes.
Formula
Beta = Cov(R_asset, R_market) / Var(R_market)
Equivalently:
Beta = Correlation(R_asset, R_market) * (sigma_asset / sigma_market)Worked example
Over the past 3 years, NVDA had a correlation of 0.65 with the S&P 500, a volatility of 45% versus the S&P at 18%. Beta = 0.65 * (45 / 18) = 1.625. So a 1% S&P move implies an average 1.6% NVDA move — and a sudden market drop of 5% historically translates to ~8% NVDA drawdown.
How ARIA Analyst uses it
ARIA estimates rolling 252-day beta against the relevant benchmark (S&P 500 for US, STOXX 600 for EU) and uses it in the Factor Agent to decompose portfolio risk.
Related terms
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