Finance Dictionary
Beta
Definition
A measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole.
Deep Dive
Beta is a widely used measure of a security's or portfolio's systematic risk, quantifying its volatility in relation to the overall market. A beta coefficient of 1 indicates that the security's price tends to move in tandem with the market; if the market rises by 1%, the security is expected to rise by 1%. A beta greater than 1 suggests higher volatility (e.g., tech stocks), meaning the security is expected to move more than the market, while a beta less than 1 (e.g., utility stocks) indicates lower volatility, implying it moves less than the market.
Examples & Use Cases
- 1A growth stock with a Beta of 1.5 is expected to increase by 1.5% for every 1% rise in the overall market, but also fall by 1.5% for every 1% market decline.
- 2A defensive stock, such as a major food producer, might have a Beta of 0.8, indicating it is less sensitive to market fluctuations than the average stock.
Related Terms
VolatilitySystematic RiskCapital Asset Pricing Model (CAPM)AlphaStandard DeviationDiversification