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.
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Finance: What is a Portfolio?7 Views
Finance allah shmoop What is a portfolio Well this is
an artist portfolio The clay ashtrays they did in preschool
for mom They're sketches of birds and whatever else they
could see out of their bedroom window and this hot
mess all part of their body of work All right
Moving on All right Now here's An investor's portfolio four
hundred shares a coke one hundred grand worth of corporate
bonds from comcast shell and mickey d's Two hundred fifty
shares of whatever dot com and a bunch of other
names in here Well the whole thing comprises the portfolio
of investments that mr and mrs jones air making to
you know hopefully be able to retire on what else
is in here while they're home It's probably worth eight
hundred grand Now that shoebox in palo alto subtract there
three hundred grand in mortgage and five hundred k is
thie equity value They have now in their homes Right
What else Here's a thousand shares of the awesome yield
mutual fund in twelve hundred chairs have show me the
money index fund added all up that's their investment portfolio
that's everything they own or have as invested in assets
So it's a portfolio a broad based one and a
more narrow based portfolio might be just a given mutual
or index fund with like a focus on investing or
just a collection of a dozen stocks they owned in
a brokerage account like this one Why so many eggs
or investments Well because diversity is a good thing when
it comes to investments usually anyway unless you're zuk r
bezos or larry sergei if you found it facebook or
amazon or google well and the world looks a little
bit different from fifty thousand feet up in the air
in your private jet But for normal people like us
you know who don't know much about investing in internet
stocks Well then a diverse portfolio spreads risk and volatility
And if you're careful about not spending too many of
your beans well you two can go off into the
sunset Living a nice retirement playing with your own yacht 00:01:58.049 --> [endTime] for his rubber duckie
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