What is the Portfolio Beta?

Im trying to figure out what "modern portfolio theory," the "beta coefficient" is?

• anybody??? im trying to figure out what "modern porfolio theory," the "beta coefficient," is and what do they have to do with the measurement of investment risk?

• Answer:

  "Modern portfolio theory (MPT) is a theory of investment which tries to maximize return and minimize risk by carefully choosing different assets." (Wiki) You select assets which don't carry the same risks, so that theoretically when one goes down, another will go up, so evening out your returns and risk. It's one method of providing diversification. http://en.wikipedia.org/wiki/Modern_portfolio_theory "The beta is a way of measuring how closely two asset classes march in tandem or not. "In finance, the beta (β) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole." An asset with a beta of 0 means that its price is not at all correlated with the market. A positive beta means that the asset generally follows the market. A negative beta shows that the asset inversely follows the market; the asset generally decreases in value if the market goes up and vice versa." E.g., stocks and bonds usually have disparate betas; common stocks and preferred stocks have similar betas. The market as a whole has a beta of 1.0. If a growth mutual fund has a beta of 1.25, it is riskier than the market. If say a utility mutual fund has a beta of 0.75 it is less risky than the market as a whole. http://en.wikipedia.org/wiki/Beta_coefficient#Choice_of_benchmark There are software programs that compute beta across numerous classes of assets: stocks, bonds, cash, real estate, commodities, etc. These programs let analysts determine how much money to allocate to which classes of assets for the least risky, best return portfolio.