NextPrevious

Saving, Managing Debt, and Budgeting

Beta

What is the “beta” of a stock or mutual fund?

The beta of a stock/mutual fund is the result of a mathematical equation that measures the volatility of that stock/mutual fund when compared against some benchmark, such as other stocks of similar qualities or, in the case of a mutual fund, a benchmark index. Beta measures how the price of a stock or mutual fund might react to changes in price of the benchmark. The benchmark and the investment vehicle may be highly correlated; if the benchmark price increases, so does the investment vehicle, and vice versa. Accordingly, an investment such as a mutual fund with a beta of 1.0 will have a price that will, more likely than not, move with the market. It is closely matched with its benchmark, but a mutual fund with a beta less than 1.0 will not move with the market. A mutual fund or stock with a beta of 1.2 will be about 20% more volatile than its benchmark.



Close

This is a web preview of the "The Handy Investing Answer Book" app. Many features only work on your mobile device. If you like what you see, we hope you will consider buying. Get the App