Beta Explained: Market Risk Formula & Calculator

What is beta?

Beta measures how sensitive an asset is to market moves. A beta of 1.0 means the asset tends to move with the market. A beta above 1.0 implies amplified moves, while a beta below 1.0 implies smaller moves. Negative beta means the asset moves in the opposite direction on average.

Beta is the risk input for the Treynor ratio. If you care about total volatility instead of market sensitivity, use the Sharpe ratio.

Beta calculator

Beta formula (full definition)

$$\beta = \frac{\text{Cov}(r_i, r_m)}{\text{Var}(r_m)}$$

Where $r_i$ is the asset return series and $r_m$ is the market return series. The correlation-based form above is equivalent when you have volatility data.

How to interpret beta

• Beta = 1.0: moves in line with the market.
• Beta > 1.0: more volatile than the market; higher sensitivity.
• Beta < 1.0: less volatile than the market.
• Beta < 0: tends to move opposite the market.

Beta depends on the benchmark and time window, so always compare betas calculated on the same basis.