Beta (Coefficient)

A financial statistic and standard used to measure the sensitivity of an asset parallel to its market.

A beta coefficient is used together with benchmarks to determine how sensitive a particular asset is to changes in market conditions. The coefficient ordinarily measures volatility but is more applicable for assessing the influence that a specific portfolio or market characteristic (price, especially) has on the value of an asset. Thus, it can show the extent to which market conditions and portfolios prompt changes (and how much changes) in the price and valuation of an asset.

The beta coefficient for an asset Z may be positive or negative relative to the market, which would mean that the value of the asset respectively mirrors market conditions or reacts contrary to these conditions. Also, the coefficient can only range between 0 and 1 with 0 indicating no relationship and 1 indicating a perfect association.