Risk & returns
Beta estimates how an asset's returns have moved with a chosen market benchmark under a linear model. A beta above one indicates greater fitted sensitivity, not a guaranteed future multiple.
Make it click
Watch a boat as the tide rises and falls. Its usual response can be estimated, while wind, cargo and its own engine create movements the tide does not explain.
Now put that into markets
Regression relates asset returns to benchmark returns. Beta is the fitted slope; alpha and residual variation describe other parts under the model.
Results depend on benchmark, period, frequency and currency. Leverage and business cyclicality can raise sensitivity.
Inspect confidence, fit and stability, not only the coefficient. Use a benchmark that matches the asset's economic exposure.
Beta is backward-looking and linear. It can miss crashes, option-like payoffs and structural change, and it is not total risk.
Takeaway
