What is a stock’s beta intended to measure relative to the overall market?

A stock’s beta is intended to measure its systematic risk relative to the overall market.

In finance, beta estimates how much an asset’s returns have historically moved in relation to a chosen market benchmark. A beta of 1 suggests movement broadly in line with the benchmark. A beta above 1 indicates greater historical sensitivity, while a beta below 1 indicates lower sensitivity. A negative beta would imply an inverse relationship over the measured period.

Beta does not measure every kind of risk. Company-specific events, such as a product failure or management change, are diversifiable risks and are not captured by market beta in the same way. Beta also depends on the benchmark, time period, return frequency, and calculation method.

The capital asset pricing model uses beta as one component in estimating an asset’s expected return. Historical beta is not a promise about future price movements, especially when a company’s business or market conditions change.