Beta 1.2 means it tends to amplify the index by a fifth in both directions; 0.8 means it dampens it. It says nothing about direction of returns, only sensitivity.
For the formula and the constants behind this figure, see Methodology.
Guides that use Beta
3 guides put this term to work.
- How to read a mutual fund factsheet like a proRead it backwards: mandate and benchmark, then holdings and concentration, then cost, then risk — and only then returns. Four minutes, in the order that matters.
- Decoding alpha and beta: manager skill versus market riskBeta is how much market you took; alpha is what you got beyond it; R² tells you whether either number means anything. Read in that order, they catch a closet index fund.
- Treynor and information ratio: advanced tools for comparing fundsOne prices market risk, the other prices the decision to differ from the index. For choosing between active funds in one category, the information ratio is the most relevant number on the page.
More on benchmark-relative
How the fund behaved against its index. All computed from 36 monthly returns, so a fund needs about three years of history to show any of them.
- Alpha
- Annualized return above what the fund's market exposure alone would predict.
- R²
- How much of the fund's movement the benchmark explains, 0–100%.
- Treynor ratio
- Excess return per unit of beta rather than per unit of total volatility.
- Information ratio
- Return above the benchmark, per unit of tracking error.
- Tracking error
- How far the fund's returns typically stray from the benchmark's, annualized.
- Upside capture
- The share of the index's gains the fund captured in months the index rose. 100 = matched it.
- Downside capture
- The share of the index's losses the fund took in months the index fell. Lower is better.