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 right order.
- Decoding alpha and beta: manager skill versus market riskBeta is how much market you took; alpha is what you got beyond it; R² says whether either number means anything. Read in order, they catch a closet indexer.
- 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 a category, the second matters most.
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.