Beta — What Is the Beta Coefficient?
Definition of beta coefficient in investing. How it measures market risk, how to interpret values and what it means for your portfolio.
Definition
Beta coefficient (β) measures the sensitivity of stock or portfolio price to market changes (benchmark, most often an index like S&P 500 or WIG20). In other words, beta tells you by what percentage an asset's price will change when the market changes by 1%.
Interpreting beta values
- β = 1.0 — asset moves identically to market
- β > 1.0 — asset is more volatile than market (e.g., β = 1.5 → market +10%, asset +15%)
- β < 1.0 — asset is less volatile than market (e.g., β = 0.5 → market +10%, asset +5%)
- β = 0 — no correlation with market
- β < 0 — asset moves opposite to market (rare)
Examples
| Company type | Typical beta |
|---|---|
| Tech companies | 1.2–1.8 |
| Utilities | 0.3–0.6 |
| Banks | 0.8–1.3 |
| Gold | ~0 (low correlation) |
| Treasury bonds | Negative or close to 0 |
Beta and portfolio risk
Beta measures systematic risk (market) — risk that cannot be eliminated through diversification. If your portfolio has beta 1.3, you can expect it to drop 13% when the market drops 10%.
Defensive investors seek low-beta companies. Aggressive investors — high-beta.
Beta limitations
- Beta is based on historical data — doesn't guarantee future behavior
- Changes over time (company's beta in bear market may differ from bull market)
- Doesn't account for company-specific risk (e.g., scandal, bankruptcy)
How Freenance can help?
Freenance can calculate your portfolio's beta relative to selected benchmarks. Check whether your portfolio is more or less risky than the market and adjust allocation to your goals.
Want full control over your finances?
Try Freenance for free