Glossary · from the DESK dictionary
Beta
A measure of a stock's sensitivity to overall market moves.
In plain words
A beta of 1.5 means: if the market rises or falls 1%, the stock tends to move about 1.5%.
In more detail
Beta measures an investment's sensitivity to market moves: a beta of 1.3 means a 10 percent market move triggers a 13 percent move on average. Three limitations are decisive in application: it is an average over the measurement period, it is not stable over time, and it describes only the linear relationship. For options strategies and in crises its informational value regularly collapses.
Formula
Beta = Covariance(Stock, Market) / Variance(Market)
Measures how much a stock's return has historically moved relative to the market's return.
Example
A portfolio has a beta of 0.7 over three years — defensive. In the crash month it falls as much as the market: the measured beta came from calm phases in which relationships ran differently.
What it means for traders
A central metric in the CAPM model and for assessing a stock's systematic risk.
Common pitfalls
Based on historical data — future beta can deviate significantly from historical beta.
Related terms
Alpha · Capital Asset Pricing Model (CAPM) · Characteristic Line · Covariance · High-Beta Stock · Index Model · Correlation · Portfolio Beta · R-Squared (R²) · Security Characteristic Line (SCL) · Treynor Ratio · Unlevered Beta
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.