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Defined in a famous paper by William Sharpe in 1964 — he of the [[Sharpe ratio]] — [[beta]] is defined as | 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.” | {{box|“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. | 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. | ||