Beta
Beta measures how much a stock tends to move compared with the whole market: a beta of 1 moves with the market, above 1 moves more, below 1 moves less.
Beta is the slope from regressing a stock's returns on the market's. It's central to the capital asset pricing model (CAPM).
Related terms
- Volatility: Volatility measures how much and how quickly a price moves up and down, usually as the annualized standard deviation of its returns.
- Diversification: Diversification is spreading money across many different investments so a loss on one has less effect on the whole portfolio.
- Capital asset pricing model (CAPM): The capital asset pricing model says an investment's expected return equals the risk-free rate plus its beta times the market's extra return over that rate.
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