A measure of a mutual fund's price volatility relative to its benchmark index. A beta of 1 means the fund moves in line with the market.
Beta quantifies the sensitivity of a fund's returns to movements in the benchmark index. It tells you how much the fund is likely to move when the market moves by 1%.
If a fund has beta of 1.2, it tends to rise 12% when the market rises 10%, and fall 12% when the market falls 10%. A beta of 0.8 means the fund is less volatile — it rises/falls 80% as much as the market.
Beta is calculated using regression analysis of the fund's daily returns against the benchmark's daily returns.
Beta = 1: Fund moves in line with the market.
Beta > 1: Fund amplifies market movements (higher risk, potentially higher return).
Beta < 1: Fund is more stable than the market (defensive).
β = Covariance(Rp, Rm) ÷ Variance(Rm)