Beta

CFA Level I Portfolio Management
#1

Is Beta

A)Covariance of an asset with market portfolio or

B) correlation coefficient with the market portfolio?

#2

No.

(And you already know that B cannot be correct: you’ve seen betas greater than 1.)

β = Cov(market returns, stock returns) / σ²(market returns)

= ρ(market returns, stock returns) × (σ(stock returns) / σ(market returns))