Short definition: Beta coefficient (β) is a measure of a stock’s volatility or systematic risk in relation to the overall market.
Explanation: It indicates how much a stock’s price is expected to move compared to the broader market. A beta of 1 means the stock tends to move in line with the market. A beta greater than 1 suggests the stock is more volatile than the market, while a beta less than 1 implies the stock is less volatile.
Example: If a stock has a beta of 1.5, it is expected to move 1.5 times as much as the market. If the market rises by 10%, the stock is expected to rise by 15%.
Additional information (optional): Beta is a key component of the Capital Asset Pricing Model (CAPM), which is used to calculate the expected return on an investment based on its systematic risk. Beta is also used in portfolio management to assess the overall risk of a portfolio and to construct diversified portfolios.