Beta
Beta measures a stock's sensitivity to systematic market risk — its volatility relative to the overall market (which has beta of 1.0).
Concept map
Learn, apply, review
Definition
Beta measures a stock's sensitivity to systematic market risk — its volatility relative to the overall market (which has beta of 1.0).
Use case
Used in risk management workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Beta
Beta is calculated via regression of stock returns against market returns. β > 1 means more volatile than market (amplifies moves); 0 < β < 1 means less volatile; β < 0 (rare) moves opposite to market. Beta is central to CAPM for calculating expected returns and cost of equity.
Example: A stock with beta 1.5 typically rises 1.5% when the market rises 1% and falls 1.5% when the market falls 1%. A utility stock with beta 0.6 is defensive — during a 10% market decline, it might only fall 6%.