What Is a Mutual Fund Beta? (2024)

FAQs

What Is a Mutual Fund Beta? ›

Beta of a mutual fund scheme is the volatility of the scheme relative to its market benchmark. If beta of a scheme is more than 1, then scheme is more volatile than its benchmark. If beta is less than 1, then the scheme is less volatile than the benchmark.

Any beta less than 1 denotes lower volatility and higher than 1 denotes more volatility compared to the benchmark index. For example, if your mutual fund portfolio XYZ has a beta of 0.70, it denotes lower volatility. This means that for every rise or fall of 1 in the market, the value of XYZ may rise or fall by 0.70.

Beta greater than 1: This denotes a volatility that is greater than the broad-based index. Many new technology companies have a beta higher than 1. Beta greater than 100: This is impossible, as it indicates volatility that is 100 times greater than the market.

A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta of less than 1.0 indicates that the investment will be less volatile than the market. Correspondingly, a beta of more than 1.0 indicates that the investment's price will be more volatile than the market.

Key Takeaways. Beta is a concept that measures the expected move in a stock relative to movements in the overall market. A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility.

Betas less than 1.0 indicate less volatility: if the stock had a beta of 0.5, it would have risen or fallen just half a percent as the index moved 1%.

Beta is the risk-reward measurement that informs investors how sensitive their portfolio is to market changes. The market benchmark index sits at a 1.0, and for the lowest possible volatility in a portfolio, investors need to try to remain as close to a 1.0 as possible.

There is no such thing as an empirically “good” or “bad” beta for a stock. The type of beta you want for your portfolio depends on the type of investor you are. If you're building a high-dividend, low-volatility portfolio that's of a more conservative nature, a low beta — below 1.0 — is likely a good choice for you.

The beta of the S&P 500 is expressed as 1.0. The beta of an individual stock is based on how it performs in relation to the index's beta. A stock with a beta of 1.0 indicates that it moves in tandem with the S&P 500.

Beta = 1 – Power. Values of beta should be kept small, but do not have to be as small as alpha values. Values between . 05 and . 20 are acceptable.

How to check mutual fund beta? ›

Actually, beta is calculated statistically by fitting a line through a plot of excess monthly returns of the fund over risk free rate (on Y-axis) versus excess monthly returns of market benchmark over risk free rate – the slope or gradient of the best fit line through this plot is the Beta of the fund.

Beta helps investors understand the systematic risk of a stock and its potential reaction to market changes. If the beta score exceeds 1, it implies a higher level of volatility, whereas a beta score below 1 indicates lower volatility.

This tells us that with a Sharpe ratio of 2, Portfolio B provides a superior return on a risk-adjusted basis. Generally speaking, a Sharpe ratio between 1 and 2 is considered good. A ratio between 2 and 3 is very good, and any result higher than 3 is excellent.

What Is a Good Beta Value? A beta value between 0.8 and 1.2 is ideal. It shows a stock's movements are similar to the market, like the S&P 500. A beta under 1 means the stock is less volatile than the market.

In general, a beta hCG level of over 100 is generally considered a good, positive result. But what's more important than the absolute beta number that helps determine normal levels is the rate of increase over time (it should double every 48 hours).

Beta Ratio is the ratio between the line inner diameter to bore size of the orifice. The flow coefficient is found to be stable between beta ratio of 0.2 to 0.7 below which the uncertainity in flow measurement increases.

If a stock has a beta of 1.2, it might be considered 20 percent riskier than the benchmark and therefore should compensate investors with a higher expected return. If the index returned 10 percent, the stock should return 12 percent.

Values of beta should be kept small, but do not have to be as small as alpha values. Values between . 05 and . 20 are acceptable.

For investors who are seeking lower-risk investments, a beta close to 1 may be considered "good." For investors who have a higher tolerance for risk and are seeking higher returns, a beta greater than 1 may be considered "good."