Beta coefficients, a key metric in finance, quantify the systematic risk of an asset or portfolio in relation to the overall market. These coefficients are derived from examining past market behavior. This approach provides a framework for understanding how an asset’s price has historically fluctuated in response to market movements.
Leveraging past price fluctuations allows for the assessment of an investment’s volatility relative to the market benchmark. A coefficient greater than 1 suggests higher volatility than the market, while a coefficient less than 1 indicates lower volatility. This is essential for portfolio diversification, risk management, and performance evaluation, enabling investors to make informed decisions about asset allocation.
