Beta is a measure of a stock's volatility relative to the overall market or a specific benchmark index. A beta greater than 1 indicates higher volatility, while a beta less than 1 suggests lower volatility and risk.
Beta
Definition
Beta is a measure of a stock's volatility relative to the overall market or a specific benchmark index. A beta greater than 1 indicates higher volatility, while a beta less than 1 suggests lower volatility and risk.
Example
A stock with a beta of 1.5 would tend to move 1.5% for every 1% move in the broader market, making it more sensitive to market swings.
Key Points
- 1Measures systematic risk, which cannot be diversified away.
- 2A beta of 1 means the stock moves with the market.
- 3A negative beta indicates movement opposite to the market.
- 4Used by investors to assess risk and potential returns.
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