**Portfolio Risk Metrics (Part I):**

beta 'β'

beta 'β'

The beta coefficient can be interpreted as follows:

β =1 exactly as volatile as the market

β >1 more volatile than the market

β <1>0 less volatile than the market

β =0 uncorrelated to the market

β <0 negatively correlated to the market

excerpt from the Corporate Finance Institute

excerpt from the Corporate Finance Institute

**correlation coefficient 'ρxy'**

The correlation coefficient is a value that indicates the strength of the relationship between variables.

The coefficient can take any values from -1 to 1. The interpretations of the values are:

-1: Perfect negative correlation. The variables tend to move in opposite directions

(i.e., when one variable increases, the other variable decreases).

0: No correlation. The variables do not have a relationship with each other.

1: Perfect positive correlation. The variables tend to move in the same direction

(i.e., when one variable increases, the other variable also increases).

*excerpt from the Corporate Finance Institute*

**standard deviation 'σ'**

68% of returns will fall within 1 standard deviation of the arithmetic mean

95% of returns will fall within 2 standard deviations of the arithmetic mean

99% of returns will fall within 3 standard deviations of the arithmetic mean

*excerpt from Corporate Finance Institute*

**variance 'σ²'**

In investing, variance is used to compare the relative performance of each asset in a portfolio.

Because the results can be difficult to analyze, standard deviation is often used instead of variance.

In either case, the goal for the investor is to improve asset allocation.

*excerpt from Investopedia*

Added ρxy² (correlation squared).