Beta denotes the sensitivity of the mutual fund towards market movements. It is the measure of the volatility of the mutual fund portfolio to the market. Any beta less than 1 denotes lower volatility and higher than 1 denotes more volatility compared to the benchmark index.

Is beta equal to volatility?

Beta. A beta greater than one indicates greater volatility than the overall market, and a beta less than one indicates less volatility than the benchmark. If, for example, a fund has a beta of 1.05 in relation to the S&P 500, the fund has been moving 5% more than the index.

How does the beta coefficient relate to the stock market?

Investors also use the beta coefficient as a performance measure, comparing the mutual fund’s performance against the performance of either the stock market as a whole, or an index such as the S&P 500. Investors typically give the stock market as a whole and the S&P 500 Index a beta value of one.

How is the beta of a mutual fund calculated?

Beta, also known as the beta coefficient, is a measure of the volatility, or systematic risk, of a security or a portfolio compared to the market as a whole. Beta is calculated using regression analysis and it represents the tendency of an investment’s return to respond to movements in the market.

How are alpha and beta used to measure risk?

Alpha is a measure of an investment’s performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its alpha.

Which is the best way to measure risk in a mutual fund?

Alpha, beta, and the Sharpe ratio are the most commonly used. Alpha is a measure of an investment’s performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index.