A measure of an asset's sensitivity to market returns, equal to its covariance with the market divided by the market variance. A beta above one means the asset amplifies market moves.
Where you will meet it
Beta comes up in 48 learning outcome notes across the FRM syllabus.
A few of them:
Using Futures for Hedging FRM Part I · Financial markets and products
“Stock index futures let a manager change the beta of an equity portfolio without trading the shares.”
Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) FRM Part I · Foundations of risk management
“Beta is defined by Beta = Cov(Ri, Rm) ÷ Var(Rm).”
Common Univariate Random Variables FRM Part I · Quantitative analysis
“Beta lives on 0 to 1, which suits recovery rates.”
Operational Risk FRM Part I · Valuation and risk models
“The standardized approach splits gross income into eight business lines and multiplies each by a beta between 12% and 18%, for example 18% for trading and sales and 12% for retail banking.”
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