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Defined in a famous paper by William Sharpe in 1964 — he of the Sharpe ratio — beta is defined as “a portfolio risk that cannot be diversified away by adding more securities to it.” Since the whole market has all the securities in it, you can't add to that, the whole market has a beta of 1. Therefore to track Beta is to track the whole market's performance. | Defined in a famous paper by William Sharpe in 1964 — he of the Sharpe ratio — beta is defined as “a portfolio risk that cannot be diversified away by adding more securities to it.” Since the whole market has all the securities in it, you can't add to that, the whole market has a beta of 1. Therefore to track Beta is to track the whole market's performance. | ||
Therefore watch out for — well, to put not to fine a point on it — ''bullshit'' products claiming to yield returns like “[[intelligent beta]]”; “[[smart beta]]” or “[[enhanced beta]]”. | Therefore watch out for — well, to put not to fine a point on it — ''bullshit'' products claiming to yield returns like “[[intelligent beta]]”; “[[smart beta]]” or “[[enhanced beta]]”. Nonsense on stilts. | ||
Good article [https://portfoliosolutions.com/latest-learnings/blog/no-such-thing-better-beta here]. | Good article [https://portfoliosolutions.com/latest-learnings/blog/no-such-thing-better-beta here]. | ||
{{Greeks}} | {{Greeks}} | ||
Revision as of 14:51, 19 September 2016
So-so. Ordinary. Unspectacular. Safe. Dull. Meets expectations. Won’t try to rip you off.
Defined in a famous paper by William Sharpe in 1964 — he of the Sharpe ratio — beta is defined as “a portfolio risk that cannot be diversified away by adding more securities to it.” Since the whole market has all the securities in it, you can't add to that, the whole market has a beta of 1. Therefore to track Beta is to track the whole market's performance.
Therefore watch out for — well, to put not to fine a point on it — bullshit products claiming to yield returns like “intelligent beta”; “smart beta” or “enhanced beta”. Nonsense on stilts.
Good article here.
See also
- Greeks - the home of all things Greek on this site. It’s our own little Athens.
- Alpha
- Beta
- Delta
- Nu - a trick for young players — and those with a degree in Classics.
- Omega — the end of days, and the right time for backtesting
- Vega — not really a Greek at all, but a maudlin singer-songwriter
- Enhanced beta
- Leveraged alpha