Beta (β), primarily used in the Capital Asset Pricing Model (CAPM), is a measure of the volatility or systematic risk of a security or portfolio compared to the market as a whole.
Beta data on individual stocks can only give an investor a rough idea of how much risk a stock will add to a (presumably) diversified portfolio.
For a beta to be meaningful, a stock must be related to a benchmark that is used in the calculations.
The S&P 500 is in beta 1.0.
Stocks with a beta greater than 1 will move faster than the S&P 500; stocks with a beta of less than 1 have less momentum.
Arbitrage Pricing Theory (APT) is a multi-factor asset pricing model based on the idea that an asset’s return can be predicted using a linear relationship between an asset’s expected return and a set of macroeconomic variables that account for systematic risk.
The Fama French three-factor model is an asset pricing model that extends the capital asset pricing model by adding size and value risk factors to market risk factors.
Modern Portfolio Theory (MPT) is a method that risk-averse investors can use to create diversified portfolios that maximize their returns without an unacceptable level of risk.
The Sortino ratio differs from the Sharpe ratio in that it takes into account only the standard deviation of the downside risk, and not the total (up + down) risk.
Leveraged beta (commonly referred to as simply beta or equity beta) is a measure of market risk. Debt and equity are taken into account when assessing a company’s risk profile.