Beta Exposure

Beta exposure is the beta of a security multiplied by its market value. For example, if you own $100 million worth of a stock, and the stock has a beta to the market index of 0.80, then the beta exposure would be $80 million.

$100 million x 0.80 = $80 million

In other words, owning $100 million of a stock with a beta of 0.80, is like owning $80 million of the market index. If a portfolio has a beta exposure of $80 million and the market index falls 2.00%, we would expect the portfolio to lose $1.6 million more than it would if the market had been flat.

You can measure beta exposure to any index or risk factor.

For a particular index or risk factor, beta exposures are additive. You can add across positions to get the total beta for your portfolio.

Beta exposures can be useful for hedging decisions and managing factor exposures. If the beta exposure of your portfolio is $4 million, then shorting $4 million of the factor securities should negate that exposure (beta is a linear measure of risk; if your portfolio has non-linear instruments, such as options, hedging with linear instruments will only reduce the risk for small moves in the factor).

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