What Is Beta?
Beta measures how much an asset moves relative to the broader market. Beta of 1.0 means the asset moves with the market on average; beta of 1.5 means it moves 1.5x as much in either direction; beta of 0.5 means it moves half as much.
High-beta stocks (1.3+) include most growth names — tech, biotech, small caps — that exaggerate market moves. Low-beta stocks (below 0.7) tend to be defensive — utilities, consumer staples, large-cap dividend payers. During bull markets, high beta outperforms; during bears, low beta protects.
Portfolio beta is a weighted average of individual betas. If you want to reduce market exposure without changing position count, rotate toward lower-beta names. If you want to amplify a market bet, concentrate in high-beta names. Beta is one of the most useful single numbers for understanding a portfolio's risk profile.
Related terms
- Alpha — Return earned above a benchmark, adjusted for risk — a measure of skill.
- Volatility — A statistical measure of how much an asset's price varies over a period.
- Sharpe Ratio — Risk-adjusted return — the excess return per unit of volatility.
- Diversification — Spreading investments across different assets to reduce risk.