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Crypto Terms:  Letter B

What is Beta (Coefficient)?

Meaning:
Beta (Coefficient) - a tool for comparing the volatility of a single asset to the volatility of the entire market or a specific portfolio.
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Let's find out Beta (Coefficient) meaning, definition in crypto, what is Beta (Coefficient), and all other detailed facts.

A beta coefficient can be used to compare the volatility of an asset to the volatility of the whole market. For example, beta could be employed to determine a projected return on investment of an asset. It's calculated based on an asset's volatility in relation to the market.

Therefore, beta is used to assess how much risk a certain investment will add to a current portfolio rather than measuring the risk of investment in a single asset. Mutual funds, for instance, could use beta to investigate how risky it would be to add a certain financial instrument to their investment portfolio. Therefore, based on the risk profile of a certain portfolio, the beta coefficient can assist users in determining which assets they should acquire.

Beta is interpreted by measuring whether it's above 1 or below it. This is the case because beta would be equal to 1 if all investable assets were compared. However, if we compared a specific asset against the market, beta would probably be higher or lower than 1.

When beta is higher than 1, it means that the asset is both volatile and its price movements correspond with the market. However, when beta is lower than 1, it might indicate lower volatility, or that the price fluctuations of an asset correspond less with the market.

However, beta can also be used as a risk measure that compares the risk of an investment to a benchmark. The benchmark could be depicted as a broad market index or a particular portfolio. For instance, we could use Bitcoin as a benchmark to determine beta for SOL in connection to the price and volatility of Bitcoin.

Additionally, the volatility of Bitcoin could be compared to stock or gold markets providing insights into Bitcoin's correlation with the traditional financial markets.