Glossary
Beta
A measure of how much a stock has moved relative to the market, where 1.0 means it moved roughly in step.
Beta answers one narrow question: historically, when the whole market moved by a certain amount, how much did this particular stock move? A beta of 1.0 means it tended to move about the same. A beta of 1.8 means it tended to swing nearly twice as far, in whichever direction. A beta of 0.5 means it tended to move about half as far.
It is a backward-looking statistic calculated from past prices, so it describes what happened rather than what will happen. A company that changes what it does, or that grows out of one industry into another, can have a beta that describes a business it no longer runs.
Beta also measures size of movement, not direction and not danger. A stock that rose sharply while the market rose modestly earns a high beta from that alone. People who use beta usually pair it with something that describes the business, because a number about price movement cannot tell you why the price moved.
Learn this properly
Lesson 5: Risk, in the Language You Already UseWhat you can actually lose, why volatility and loss are not the same word, and diversification without the lecture.
Related terms
- 52-Week RangeThe highest and the lowest price a stock has traded at over the past year, printed as a pair.
- Bear MarketA fall of 20 percent or more from a recent high, across a whole market rather than a single stock.
- DiversificationSpreading money across different investments so that no single one determines the whole result.
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