Beta

Beta measures how much your portfolio moves relative to the market. Index Balance calculates it automatically so you understand your systematic risk exposure.

Definition

Beta (β) measures the sensitivity of a portfolio or asset to the overall market's movements. A beta of 1 means the portfolio moves exactly in line with the market. A beta of 1.2 means that if the market rises 10%, the portfolio tends to rise 12% (and if the market falls 10%, the portfolio tends to fall 12%). A beta of 0.7 indicates lower sensitivity to the market.

For a well-diversified global index fund portfolio, beta is typically close to 1, which is expected. A beta significantly above 1 may indicate concentration in volatile sectors or the use of leverage. A beta below 1 might indicate the presence of defensive assets such as bonds or sectors with low correlation to the broad market.

Beta is always calculated relative to a specific benchmark index. A portfolio with a beta of 0.85 against the MSCI World may have a very different beta relative to a local index.

Practical example

Your portfolio has a beta of 0.85 relative to the MSCI World. In March 2020, the MSCI World fell -13.5%. Your portfolio fell -11.5% (0.85 × -13.5% ≈ -11.5%). The sub-1 beta acted as a buffer, though it also means you capture less upside in rising markets.