Beta

Beta measures how sensitive your portfolio is to the benchmark you selected. A beta of 1 means the two have historically moved together, one for one. A beta of 0.6 means your portfolio typically moved about six tenths as far in the same direction. A beta above 1 means it amplified the benchmark's moves.

This is the first of the benchmark-relative measures on the Performance tab, and alpha is built directly on top of it.

How it is calculated

beta = covariance(portfolio daily returns, benchmark daily returns) / variance(benchmark daily returns)

Gylder resamples the benchmark onto your portfolio's own dates first, so the two return streams are paired day for day. Without that step the calculation would be comparing returns from different days.

The benchmark matters

Beta has no meaning on its own. It is always beta against something, and changing the benchmark changes the number.

You can select from the S&P 500, MSCI World, EURO STOXX 50, and STOXX Europe 600. A European portfolio measured against the S&P 500 will show a lower beta than the same portfolio measured against STOXX Europe 600, and neither figure is more correct than the other. They answer different questions.

When the benchmark has no usable price history for your window, the whole benchmark-relative group shows a dash rather than a number. That usually means its price cache is not warm yet, not that something is wrong with your portfolio.

How to read it

Beta describes a historical tendency, not a rule. It is an average relationship fitted across every day in the window, so it can be badly wrong about any particular day, and it is least reliable in exactly the conditions people most want it for: sharp market moves, where correlations across holdings tend to converge.

A low beta does not mean low risk. A portfolio can have almost no relationship to the benchmark and still be extremely volatile on its own account. Beta only measures the part of your movement that tracks the benchmark. For total movement, see volatility; for the part that does not track the benchmark, see tracking error.

Gylder does not suggest a target beta.