The beta of your portfolio of investments relates to how volatile that portfolio performs, relative to the overall market (the S&P 500).
Most hedge funds that live in a world measured by beta are, at times, extremely leveraged. That is, they have loads of debt on top of the equities they've purchased. So if a given portfolio was, say, 5:1 leverage, and it had $100 million of base equity, and that portfolio went up 10% with the market (i.e. they both went up 10% in 3 months), then the leveraged portfolio would have had $500 million total invested in the market, returning $50 million in gains...versus the levered $100 million, which would return just $10 million.
And yes, we're forgetting interest charges on that borrow. And yes, they'd likely be a lot. The idea is that, had the market gone the other direction, under all that leveraged-induced volume, the manager would be bust.
So levered and unlevered returns are calculated with the general vibe being that, if you have tons of leverage, you're adding gasoline to an already-smoldering fire. Hence, unlevered beta tries to put the risk gradients of all portfolios more or less on the same footing.
Related or Semi-related Video
Finance: What are Misappropriation, misr...0 Views
Finance allah shmoop what are misappropriation misrepresentation misogyny and miss
independent Yeah a misappropriation not a kelly clarkson song something
about attitude and misdemeanor maybe on no Alright well they
miss here is all about bad bad things people do
teo people while clothes generally first up miss appropriation well
when you appropriate something you take it And in the
highly regulated world of finance it had better be appropriate
that you appropriate that we did They're really clever So
the missus here are things you can't do like Thou
shalt not steal ee appropriate things without it being legal
right Okay moving on then there's mis representation thou shalt
not represent myself as being registered as a rap for
legal to trade derivatives Or that the fair commission really
wass for thousand dollars on that twenty five thousand dollar
trade right That's misrepresentation you have to represent yourself and
your interests honestly All right Well as to the other
mrs well misogyny and doesn't look good on your uncle
how they're so it probably won't look good on you
either So don't do it and then miss independent Yeah
that's the kelly clarkson songs you sing it girlfriend doesn't
kill you makes you stronger something or other Yeah she 00:01:34.679 --> [endTime] sings better way
Up Next
What is Beta? Beta is a figure associated with public companies that measures how risky the company’s stock is in comparison to the market as a w...
Modern Portfolio Theory claims there's a smart way to invest. If it's not "put all your money under your mattress," we might be doing it wrong...
