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Hedge funds use an array of strategies to guide trading. Most of these strategies seek to decouple returns from those of the overall market, as measured by a statistic called “beta” (β). Beta is calculated by dividing the covariance of an investment’s return by the variance of a portfolio or market return:
βi = Cov (ri, rm) / Var(rm) where i = an investment, m = market portfolio, and r = returnClick here for reuse options!
Copyright 2010 Eric Bank, Freelance Writer