How Is the Beta Coefficient Mathematically Calculated?
Beta is calculated by dividing the covariance of the asset's returns with the market's returns by the variance of the market's returns over a specified period. The formula is Beta = Covariance(Asset Return, Market Return) / Variance(Market Return).
This calculation yields a value representing the asset's systematic risk relative to the market. A positive result indicates movement in the same direction.
Glossar
Beta Coefficient
Correlation ⎊ The beta coefficient, within cryptocurrency markets and derivatives, quantifies a derivative's sensitivity to movements in an underlying asset, typically a cryptocurrency or a basket of cryptocurrencies.
Systematic Risk
Exposure ⎊ Systematic Risk within cryptocurrency, options, and derivatives manifests primarily as correlated asset movements stemming from macroeconomic factors or broad market sentiment, impacting portfolio diversification benefits.
Crypto Beta
Definition ⎊ Crypto beta represents the quantitative measure of a single digital asset's systematic risk exposure relative to a broad, representative cryptocurrency market index.
Beta
Measurement ⎊ Beta quantifies the systematic risk of an asset relative to a specific market benchmark.