When interpreting the beta of an asset, it’s important to understand what beta represents. Beta measures the volatility or systematic risk of an asset in comparison to the overall market. A beta of 1 indicates that the asset’s price moves with the market. A beta greater than 1 indicates that the asset is more volatile than the market, while a beta less than 1 indicates that the asset is less volatile than the market.
Beta of 1.5: A beta of 1.5 means that the asset is 50% more volatile than the market. If the market goes up by 10%, this asset is expected to go up by 15%. Conversely, if the market drops by 10%, the asset is expected to drop by 15%. This higher volatility can mean higher risk, but also the potential for higher returns.
Beta of 0.75: A beta of 0.75 means that the asset is 25% less volatile than the market. If the market goes up by 10%, this asset is expected to go up by 7.5%. If the market drops by 10%, the asset is expected to drop by 7.5%. This lower volatility can mean lower risk, but also potentially lower returns.
In summary, a beta of 1.5 suggests a more aggressive investment with higher risk and return potential, while a beta of 0.75 suggests a more conservative investment with lower risk and return potential.