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Portfolio beta

The capital-weighted average beta of your holdings, expressing the whole book's sensitivity to the benchmark.

Portfolio beta is calculated by weighting each position's beta by its share of capital and summing. Short positions enter with a negative weight.

Example on $100,000: $30,000 in a 1.4-beta name, $40,000 in a 0.9-beta name, $20,000 short a 1.2-beta name, $10,000 cash. Weighted beta = (0.30 x 1.4) + (0.40 x 0.9) + (-0.20 x 1.2) = 0.42 + 0.36 - 0.24 = 0.54. The book should move roughly half as much as the index.

Compare that figure to your intent. Many traders who believe they are neutral find a beta near 1, and many who feel aggressive are effectively flat. The number also tells you the size of the index hedge needed to neutralise: 0.54 x $100,000 = $54,000 of short index exposure.

Related: beta, beta-weighted-delta, net-exposure

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