Beta is another metric we use at Rootmont to gauge a coin’s volatility compared to the overall market. Here are some examples.
β < 1: Less volatility with more safety, but less overall return. These investments out-perform when market prices are high, but under-perform during market corrections.
β > 1: More volatility with less safety, but greater return. These investments under-perform when market prices are high, but out-perform during market corrections.
β = 1: Equal volatility. This means that the coin mirrors overall market patterns.
The Beta calculation is based on the following equation:
β = covariance/variance
Covariance describes a single investment’s returns in relation to to the market’s returns. Variance describes how far the data points spread out compared to their average value.