Glossary

Beta is a measure of an investment's sensitivity to market movements, representing the relationship between the investment's returns and the overall market's returns. 🎢

It's used to estimate the level of risk an investment adds to a diversified portfolio. A beta of 1 indicates the investment moves in sync with the market, while a beta greater than 1 suggests higher volatility, and a beta less than 1 means lower volatility.

For example, if a stock has a beta of 1.5, it is expected to move 1.5 times the market's return, making it more sensitive to market fluctuations.

Fun fact: Just like alpha, beta also comes from the Greek alphabet, being the second letter. 🏺 In finance, it's used to represent the second element of risk, as alpha represents the first one. The term "beta" is fitting, as it implies that an investment's risk and return characteristics are secondary to those of the market itself.