A levered beta of zero shows that the security has no correlation to the market. A levered beta with a positive value shows that the security’s value will perform with the market and a levered beta with a negative value means that the security’s value will perform against the market. Levered beta includes the company’s debts in the calculation. Levered beta measures the sensitivity of a security’s or portfolio’s tendency to perform in line with the market or against the market. The following article takes a closer look at both and highlights the similarities and differences between levered and unlevered beta. There are two types of beta measures levered and unlevered beta. Beta allows the investor to determine a stock’s performance in comparison to the entire market’s performance. Beta is a relative measure, used for comparison and does not show a security’s individual behavior. Beta shows the sensitivity of a fund’s, security‘s or portfolio’s performance in relation to the market as a whole. Beta measures systematic risk that cannot be diversified away. Since levered beta and unlevered beta are both measures of volatility used to analyze the risk in investment portfolios, in financial analysis, it is necessary to know the difference between levered and unlevered beta to decide which measure to use in your analysis.
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