portfolio beta(redirected from Portfolio Beta Scores)
Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.
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A measure of a portfolio's volatility. A beta of 1 means that the portfolio is neither more nor less volatile or risky than the wider market. A beta of more than 1 indicates greater volatility while a beta of less than 1 indicates less. Beta is an important component of the Capital Asset Pricing Model, which attempts to use volatility and risk to estimate expected returns.
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The relative volatility of returns earned from holding a specific portfolio of securities. A high portfolio beta indicates securities that tend to be more volatile in their price movements than the market taken as a whole. Portfolio beta is calculated by summing the products of each security's beta times the proportional weight of the security in the portfolio. For example, if a portfolio consists of two securities, one valued at $15,000 and having a beta of 0.9 and the other valued at $10,000 and having a beta of 1.5, the portfolio beta is (0.9)( $15,000/$25,000 ) + (1.5)( $10,000/$25,000 ), or 1.14.
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