You have previously calculated risk as the standard deviation of the asset returns; particularly focusing on property being low risk. In calculating this measure of risk, it is absolute measure of risk; eg:8.32%

Another way to look at risk is to calculate a relative measure of risk; relative to overall “market” risk (eg: stock market risk); this is referred to as beta, which can be calculated for each asset.

We will go through the calculation for beta shortly; it is based on the capital Asset Pricing Model (CAPM):
R=Rf+B(Rm-Rf)
Where:
R = asset return
Rf = risk free rate
Rm = market return
B = beta
In interpreting beta:

1. Beta approximately 1.0; indicates asset has similar volatility to the overall market
2. Beta greater than 1.0; indicates asset has more volatility than the overall market; eg: beta = 1.20 implies asset is 20% more volatile than the overall market;
3. Beta less than 1.0; indicates asset has less volatility than the overall market; eg: beta = 0.70 implies asset is 30% less volatile than the overall market.

in calculating an asset’s beta, care needs to be taken in defining the overall market; for example, for LPTs, the overall market is the stock market as LPTs are listed on the stock market. However, for retail property, the overall market is the overall Australian property market.