Beta
What is Beta?
A measure of how much a stock moves relative to the overall market.
Understanding Beta
A beta of 1 means a stock tends to move with the market. Above 1 means larger swings; below 1 means smaller ones.
Beta is estimated from past returns, so it describes history rather than guaranteeing future behavior. It measures market risk only, not risks specific to the company.
Formula
Here, is the stock's return and is the market's return.
Example
A stock with a beta of 1.5 has tended to rise about 15% when the market rose 10%, and fall about 15% when the market fell 10%.
FAQ
Can beta be negative?
Yes. A negative beta means the asset has tended to move opposite to the market, as some gold or hedging assets do at times.