Beta

Beta measures how much a stock or portfolio moves relative to the broader market — typically the S&P 500. It is one of the most common measures of systematic (market-related) risk.

How to read it

• Beta = 1.0 — the asset moves in lockstep with the market on average
• Beta > 1.0 — more volatile than the market. A beta of 1.5 means the asset has historically moved 1.5% for every 1% market move
• Beta < 1.0 — less volatile than the market. Defensive sectors (utilities, consumer staples) often have betas around 0.5–0.7
• Beta < 0 — moves opposite to the market. Uncommon, but possible (e.g., gold ETFs sometimes show negative beta to equities)

How it's calculated

beta = covariance(asset_returns, market_returns) / variance(market_returns)

Beta is computed over a historical window — typically the trailing 24 or 36 months of weekly or daily returns. Different providers use different windows, so two sources can report slightly different betas for the same stock.

Portfolio beta

A portfolio's beta is the weighted average of its holdings' betas:

portfolio_beta = sum(weight_i * beta_i) for each holding i

A portfolio with beta of 1.2 is expected to move 1.2% for every 1% move in the market. This is a coarse statement of overall market sensitivity.

Limitations

• Backward-looking. Beta is calculated from history; it does not predict future sensitivity. Companies change.
• Ignores company-specific risk. Beta only captures market-correlated movement. A stock with low beta can still be highly risky for company-specific reasons.
• Assumes a stable relationship. Beta can change significantly during market stress, often increasing as correlations rise.