Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market.
A security’s beta is calculated by dividing the covariance the security’s returns and the
benchmark’s returns by the variance of the benchmark’s returns over a specified period.
A beta of 1 indicates that the security’s price moves with the market.
A beta of less than 1 means that the security is theoretically less volatile than the market. A beta of greater than 1 indicates that the security’s price is theoretically more volatile than the market. For
example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market.
Conversely, if an ETF’s beta is 0.65, it is theoretically 35% less volatile than the market.
beta less than 0, which would indicate an inverse relation to the market – is possible but
highly unlikely. However, some investors believe that gold and gold stocks should have
negative betas because they tended to do better when the stock market declines.