In finance, ‘Beta’ refers to a metric that measures the volatility or risk of a security or a portfolio in relation to the market as a whole. It is a key component of the Capital Asset Pricing Model (CAPM), which helps investors assess expected returns based on the systematic risk associated with a particular investment.
A Beta value of 1 indicates that the security’s price moves in sync with the market. A Beta greater than 1 suggests that the security is more volatile, meaning it tends to experience larger price swings compared to the market. Conversely, a Beta less than 1 indicates lower volatility and relative stability. For example, a Beta of 1.5 implies that the security is expected to move 50% more than the market’s movement, while a Beta of 0.5 indicates it may move only half as much.
Understanding Beta is crucial for investors as it helps them gauge the risk level of their investments in relation to market movements, assisting in portfolio management and strategic investment decisions.
