Beta
In short
How much a stock moves relative to the overall market
Beta of 1.0 means the stock moves in line with the market. Beta of 1.5 means if the market rises 10%, this stock typically rises 15% — more volatile. Beta of 0.5 means less volatile than the market.
Beta measures a stock's sensitivity to market movements. Calculated via regression of stock returns against market returns. Defensive stocks (utilities) have beta < 1. Growth/tech stocks often have beta > 1. Negative beta (gold) moves opposite the market.
Formula
Beta = Cov(stock, market) ÷ Var(market)Thresholds
- <0
- Negative — moves opposite to market
- 0-0.5
- Defensive — low market sensitivity
- 0.5-1
- Below market volatility
- 1-1.5
- Above market volatility
- >1.5
- Highly volatile vs market
Related concepts
- Alpha — Alpha is the extra return a fund earns above what you'd expect given its risk. If the market returns 10% and your fund returns 13% with the same risk, alpha is 3%. Positive alpha = the manager adds value.
- R-Squared (R²) — R-squared tells you how much your portfolio moves in sync with the overall market. An R² of 0.95 means 95% of your portfolio's ups and downs are explained by the market. A low R² means your returns come from other factors — which can be good (alpha) or risky (concentrated bets).
- Portfolio Volatility — Portfolio volatility measures how much your combined investments bounce around. Unlike individual stock volatility, it accounts for diversification — when some holdings go up while others go down, they partially cancel out, reducing overall portfolio risk.
- Sharpe Ratio — Sharpe ratio measures how much return you get for every unit of risk you take. A Sharpe of 1.0 means for every 1% of risk, you earn 1% return above the risk-free rate. Higher is better.