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What is Beta?
Beta is the statistical measure of the risk of an investment. It measures the volatility of a stock, in relation to the overall market.
Beta is used by investors or fund managers to assess risk in the stocks they buy or sell.
The overall market has a beta of 1 and individual stocks are ranked according to how much they deviate from the market.
A stock that swings more than the market over time has a beta above 1. And if a stock moves less than the overall market, its beta is less than 1. To put it simply, a stock with a beta above 1 is more volatile than the market, while another stock with a beta below 1 is less volatile.
Therefore high-beta stocks are likely riskier with higher expected returns, and low-beta stocks are less risky with lower expected returns.
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