Downside Beta

Downside beta is a measure of how a stock or portfolio performs relative to the overall market during periods of market decline. It focuses on the stock’s sensitivity to negative market movements, making it useful for investors who are concerned about potential losses in bearish markets. A downside beta of 1 indicates that the stock moves in line with the market during downturns, while a downside beta higher than 1 suggests that the stock falls more than the market when it declines.

Example

If a stock has a downside beta of 1.2, it means the stock is likely to fall 20% more than the market during a downturn.