What is Portfolio Beta?
Portfolio Beta is a measure of volatility relative to the overall market (usually the S&P 500). Beta indicates how much your portfolio's returns move in relation to market movements.
Quick Definition
- Beta = 1.0: Your portfolio moves exactly with the market.
- Beta > 1.0: High Volatility. (e.g., Tesla, Nvidia). You take more risk for potentially higher reward.
- Beta < 1.0: Low Volatility. (e.g., Coca-Cola, Utilities). You are "defensive."
Why does it matter?
If you are nearing retirement, or you need access to your cash soon, a Beta of 1.5 is dangerous. It means a standard market correction could wipe out a significant chunk of your wealth right when you need it.
Real-World Example
Imagine you have £100,000 invested with a Beta of 1.5:
- Market drops 10% (common correction)
- Your portfolio drops 15% (1.5 × 10%)
- You lose £15,000 instead of £10,000
That extra £5,000 loss could be the difference between retiring on time or working another year.
Calculate Your Portfolio Beta
You can do the math manually by finding the weighted average of the beta for every stock you own. Or, use our free sovereign tool to do it instantly:
Check My Portfolio Beta →Key Takeaways
- Beta measures volatility, not returns. A high Beta doesn't mean higher returns—it means higher risk.
- Diversification isn't just about number of stocks—it's about correlation. 10 tech stocks can still have a Beta of 1.5.
- Your Beta should match your timeline. If you're 5 years from retirement, a Beta above 1.2 is risky.
- Calculate it regularly. Your Beta changes as you add/remove positions.