GlossaryBeta

Beta

How much a stock swings relative to the overall market.

Beta measures a stock's volatility relative to the broader market. A beta of 1.0 moves in line with the market; above 1.0 amplifies market moves in both directions, below 1.0 dampens them.

The formula

Covariance (Stock, Market)Variance (Market)
= Beta

Why it matters

  • High-beta stocks fall harder in downturns but can rally harder in rallies — it's a risk dial, not a quality signal.
  • Used in portfolio construction to balance overall volatility exposure.
  • Backward-looking — past beta doesn't guarantee future volatility, especially after a major business change.

How to read it

< 0.8Lower volatility than the market
0.8–1.2Moves roughly with the market
> 1.2More volatile than the market

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