Beta is a measure of a stock’s volatility in relation to the overall market. It is a statistic that compares the performance of a stock to the performance of the overall market. A beta of 1 indicates that the stock’s price will move with the market, while a beta less than 1 means it will be less volatile than the market, and a beta greater than 1 indicates that the stock’s price will be more volatile than the market.
Beta is calculated using historical data, and it is used to help investors understand the potential risk of a stock. A stock with a high beta is considered to be more risky because it tends to be more volatile and more sensitive to market fluctuations. A stock with a low beta is considered to be less risky because it tends to be less volatile and less sensitive to market fluctuations.
For example, if the overall market (such as the S&P 500) has a beta of 1, a stock with a beta of 1.5 would be considered to be 50% more volatile than the market, and a stock with a beta of 0.5 would be considered to be 50% less volatile than the market.
It’s important to note that beta is not a perfect measure of risk, as it is based on historical data and it doesn’t take into account future events or changes in the market. Additionally, other factors such as the industry, the company’s financials, and the overall market conditions should also be taken into account when evaluating a stock’s risk.