Beta

Beta measures how much a stock's returns tend to move when the broader market moves. A beta of 1.0 means the stock moves in step with the market — the market goes up 2%, the stock goes up 2% on average. A beta of 1.5 means it tends to move 50% more than the market in the same direction (up 3% when the market is up 2%). A beta of 0.6 dampens the market's moves. Negative betas — rare for individual stocks — move opposite to the market on average.

Beta is estimated by regressing a stock's returns against a market benchmark's returns over a rolling window. The window matters: a five-year monthly beta tells a different story than a one-year weekly beta, and both change over time as the company's risk profile shifts.

Beta captures co-movement, not direction of causation, and it only captures the linear, market-wide component. Two stocks with the same beta can have very different idiosyncratic risks. Cyclical, high-leverage, and growth-heavy stocks tend to have higher betas; utilities, consumer staples, and established dividend payers tend to have lower betas.