Beta is a measure of the risk associated with exposure to general market movements rather than idiosyncratic factors. The market portfolio of all investable assets has an exact Beta of 1. A Beta below 1 may indicate an investment with lower volatility than the market, or a volatile investment whose price movements are not strongly correlated with the market.

Technically, the Beta of an asset relative to a market index is defined by a linear regression of the asset's returns on the returns of the index. A Beta greater than 1 means that the asset is more volatile than the market, while a Beta less than 1 means that it is less volatile.

While Beta is a valuable tool for assessing risk, it is essential to understand its limitations. Beta is based on historical data and cannot predict future market movements with certainty.

Derivatives, such as options, can have non-linear Betas. Consequently, traditional Beta may not be appropriate for assessing the risk of these instruments.

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In algo trading, Beta is crucial for assessing the risk of an asset relative to the market. It is an essential tool for diversification strategies and for assessing portfolio performance relative to a benchmark index.

According to the Efficient Market Hypothesis, assets with a higher return will have a higher associated risk. The Capital Asset Pricing Model (CAPM) states that excess return is attributable only to non-diversifiable market risk.

A popular strategy known as "Betting against beta" has come to light. In this strategy, an investor creates a leveraged portfolio of low Beta assets against high Beta assets to profit from this market anomaly.

Notable studies, such as Frazzini and Pedersen (2014), have highlighted the phenomenon of low Beta and its exploitation for excess returns. Other research has shown that this low Beta strategy is highly resistant to transaction costs.

Several explanations have been put forward to explain the Low Beta phenomenon, including arbitrage constraints, lottery demand, regulatory constraints, and leverage and short-selling limitations.

The Beta factor is an essential element of algo trading, enabling traders to measure the risk of an asset relative to the overall market. Although it is a powerful tool, it is crucial to understand its limitations and to use Beta in conjunction with other metrics and strategies to maximize returns in algo trading.

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