Best fit beta measures a fund’s sensitivity relative to the market represented by its corresponding Best Fit Index.
What is best fit beta?
- Best fit beta measures a fund’s sensitivity relative to its Best Fit Index.
- The beta of that index is 1.00.
Best fit beta is the beta of a fund relative to its Best Fit Index, which is the market index that shows the highest correlation with a fund over the most-recent 36 months.
Morningstar calculates a fund’s beta by comparing its excess return over Treasury bills to the Best Fit Index's excess return over Treasury bills.
The beta of the market is 1.00. So, a beta of 1.10 shows that the fund has performed 10% better than its Best Fit Index in up markets and 10% worse in down markets, assuming all other factors remained constant.
See also Best Fit Index, Beta.