Beta measures a stock's volatility relative to the market
Image: Jeffrey Zeldman from Manhattan, USA, CC BY 2.0, via Wikimedia Commons
Beta (finance)
Beta measures a stock's volatility relative to the market
Beta is a statistic that quantifies the expected change in an individual stock's price in relation to the overall market movements. It serves as an indicator of an asset's non-diversifiable risk, systematic risk, or market risk. Beta is not a measure of idiosyncratic risk, which is unique to a specific asset.
Example
If a stock has a beta of 1.5, it means that for every 1% increase in the market, the stock's price is expected to increase by 1.5%. Conversely, if the market decreases by 1%, the stock's price is expected to decrease by 1.5%.
Understanding beta helps investors assess the risk associated with a stock's price movements in relation to the market, aiding in portfolio diversification and risk management.
Related concepts
Greeks (finance)
Greeks measure sensitivity of option prices to underlying parameters
Treynor ratio
Treynor ratio measures excess return per unit of systematic risk
VIX
VIX measures 30-day S&P 500 volatility
Bias ratio
Bias ratio detects valuation bias in asset pricing
Fama–French three-factor model
Fama-French model adds size and value factors to CAPM
implied volatility tells you
Implied volatility indicates the market's expectation of future price movement
Educational content, not financial advice.
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