Beta — Stock Volatility Measure
Beta measures how much a stock moves relative to the broader market.
A beta of 1 means the stock historically moves in line with the market index. A beta of 1.5 means it tends to move 50% more — both up and down. A beta of 0.5 means it's historically half as volatile as the market.
High-beta stocks (tech, small-caps, cyclicals) amplify market swings and suit investors who can tolerate volatility in exchange for higher potential returns. Low-beta stocks (utilities, consumer staples, gold miners) act as partial shock absorbers in portfolios.
Beta is backward-looking and unstable — a stock's beta can change significantly as its business model, leverage, or sector changes. It measures market-relative volatility, not absolute risk.
Example
A stock with a beta of 1.8 that moves 18% when the index moves 10% (up or down) illustrates how beta amplifies market movements.
Further Reading
Burton Malkiel's evidence-based guide to markets, indexing and long-term strategy.
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