<Dd> Var ⁡ (Z) / Var ⁡ (X) ≈ 1 + 2 δ (β − 1). (\ displaystyle \ operatorname (Var) (Z) / \ operatorname (Var) (X) \ approx 1 + 2 \ delta (\ beta - 1).) </Dd> <P> This suggests that an asset with β greater than one will increase variance, while an asset with β less than one will decrease variance, if added in the right amount . This assumes that variance is an accurate measure of risk, which is usually good . However, the beta does need to be computed with respect to what the investor currently owns . </P> <P> Academic theory claims that higher - risk investments should have higher returns over the long - term . Wall Street has a saying that "higher return requires higher risk", not that a risky investment will automatically do better . Some things may just be poor investments (e.g., playing roulette). Further, highly rational investors should consider correlated volatility (beta) instead of simple volatility (sigma). Theoretically, a negative beta equity is possible; for example, an inverse ETF should have negative beta to the relevant index . Also, a short position should have opposite beta . </P> <P> This expected return on equity, or equivalently, a firm's cost of equity, can be estimated using the capital asset pricing model (CAPM). According to the model, the expected return on equity is a function of a firm's equity beta (β) which, in turn, is a function of both leverage and asset risk (β): </P>

Where do you find the beta of a stock