What is Portfolio's Beta?

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beta
portfolio analyzer
Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 2 min read

Stock market is down by 1%, but why is my portfolio down by 2%? šŸ¤Æ

The answer is your portfolio beta is high! ā¬†ļø

So, what is Portfolio Beta (Ī²)? šŸ¤”

A portfolio's beta (Ī²) is used to measure how risky the portfolio is compared to the index (usually the S&P 500).

For example, if the portfolio's beta is 2, it means that if the stock market goes up by 1% then the portfolio will go up by 2% and vice versa.

Ī² > 1 means your portfolio is more volatile than the index. You're taking an aggressive approach. āš”āš”

Ī² = 1 means your portfolio is as volatile as the index. Its better to switch to Index Funds/ETFs šŸ§˜šŸ§˜

Ī² < 1 means your portfolio is less volatile than the index. You're taking a conservative approach. šŸ”°šŸ”°

-ve Ī² means your portfolio moves in the opposite direction of the index. ā¬‡ļø ā¬‡ļø

What is a Good Beta (Ī²)? šŸ’

A good beta for you is based on your risk appetite and your goals. šŸŽÆ

If you wish to replicate the market performance, buy an Index Fund/ETF. šŸ§˜

If you are conservative and want to preserve the principal, a lower beta portfolio might be ideal. šŸ”°

If you are aggressive and want to generate market-beating returns, go for a higher beta portfolio šŸš€. But be tolerant and patient when the market goes down as your portfolio will even go down further. šŸ”„

How to calculate Portfolio Beta (Ī²)?

Don't worry, that's on us! :) šŸš€ Check Xillion's Portfolio Analyzer šŸš€

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