Beta
A measure of a stock's volatility relative to the overall market.
Definition
Beta is a measure of a stock's volatility in relation to the overall market (typically the S&P 500, which has a beta of 1.0). A beta greater than 1.0 indicates the stock is more volatile than the market — a beta of 1.5 means the stock tends to move 50% more than the market in either direction. A beta less than 1.0 indicates less volatility. A negative beta means the stock moves inversely to the market. High-beta stocks (technology, biotech) offer higher potential returns but greater risk, while low-beta stocks (utilities, consumer staples) are more stable but offer lower growth potential. Beta is a key component of the Capital Asset Pricing Model (CAPM) used to calculate expected returns.
Related Terms
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
TradingRisk Management
The process of identifying, assessing, and controlling threats to an investment portfolio.
InvestingDiversification
Spreading investments across various assets to reduce risk.
InvestingPortfolio
A collection of financial investments like stocks, bonds, cash, and other assets held by an individual or institution.