Volatility beta is a statistical measure quantifying the sensitivity of an asset’s price volatility to the volatility of a broader market index or benchmark. It indicates how much an asset’s price fluctuations amplify or dampen market-wide volatility. This metric helps gauge systematic risk.
Mechanism
Volatility beta is calculated through regression analysis, comparing the historical volatility of an individual asset or portfolio against the historical volatility of a chosen market index over a specific period. A beta greater than 1 suggests higher sensitivity to market volatility, while less than 1 implies lower sensitivity.
Methodology
In crypto investing, particularly for institutional options trading and portfolio risk management, understanding volatility beta assists in assessing systematic volatility risk. It informs hedging strategies, portfolio construction, and risk capital allocation by identifying assets whose volatility is strongly correlated with the overall crypto market. This enables more precise risk differentiation and dynamic position adjustments.
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