Beta (β) **is a measure of the volatility-or systematic risk-of a security or portfolio compared to the market as a whole (usually the S&P 500)**. For beta to provide any useful insight, the market that is used as a benchmark should be related to the stock.

**Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks)**. CAPM is widely used as a method for pricing risky securities and for generating estimates of the expected returns of assets, considering both the risk of those assets and the cost of capital.

Beta effectively** describes the activity of a security's returns as it responds to swings in the market**. A security's beta is calculated by dividing the product of the covariance of the security's returns and the market's returns by the variance of the market's returns over a specified period.

**Beta coefficient(β) = Covariance(Re,Rm) / Variance(Rm) **

where:

**Re**= the return on an individual stock**Rm**= the return on the overall market**Covariance**= how changes in a stock’s returns are related to changes in the market’s returns**Variance**= how far the market’s data points spread out from their average value

Source: Investopedia, Beta: Definition, Calculation, and Explanation for Investors, accessed 25 December 2023, <https://www.investopedia.com/terms/b/beta.asp>

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