What Is Beta?
A measure of how much a stock moves relative to the broader market.
The Full Definition
Beta measures a stock's price sensitivity relative to the overall market (typically the S&P 500). A beta of 1.0 means the stock moves in line with the market. A beta above 1 means it's more volatile — a stock with a beta of 1.5 tends to rise 50% more than the market in rallies but fall 50% more in declines. A beta below 1 indicates lower volatility. Beta is a useful tool but has limits — it's based on historical price data and doesn't capture company-specific risks.
Real-World Example
Utility stocks often have betas under 0.5 — they barely move with the market. High-growth tech stocks may have betas of 1.5 or higher. During the 2022 market decline, high-beta stocks fell far more than the broad index.