Beta is the investing measure that compares a stock’s movements with those of a chosen overall market benchmark.
A beta of 1 traditionally suggests that an asset has moved about as much as its benchmark, while a beta above 1 indicates greater sensitivity and a beta below 1 indicates less sensitivity. For example, a stock with a beta of 1.3 has historically tended to show larger movements than its benchmark, though beta does not predict the size or direction of the next move.
Beta is estimated from historical returns and depends on the benchmark, time period, and data frequency used. A stock can have one beta relative to the S&P 500 and another relative to a sector index. Beta also measures market-related or systematic sensitivity, not every type of risk.
A common mix-up is treating beta as a forecast of performance. It is not a guarantee of gains or losses. Alpha instead refers to performance relative to a benchmark or expected result, while standard deviation measures the overall dispersion of returns.