Glossary · Intermediate
Beta
How much a share moves relative to the wider market — the standard measure of a stock's exposure to market-wide swings.
Beta
Beta measures how much a share tends to move when the whole market moves. The market itself has a beta of exactly 1.
Reading the number
- Beta 1.0 — moves roughly in step with the index.
- Beta 0.5 — when the market moves 10%, this tends to move about 5%.
- Beta 2.0 — when the market moves 10%, this tends to move about 20%.
- Negative beta — rare; tends to move opposite to the market. Gold miners sometimes behave this way.
How IQInvest reads it
- Below 0.8 — steadier than the market. Tends to move less than the index, in both directions.
- 0.8-1.2 — market-like.
- Above 1.2 — more volatile than the market. Amplifies the index, so bigger gains and bigger falls.
What beta is not
Beta is not a measure of how risky a business is. It measures co-movement with the market, nothing else.
A company can have a low beta and still be a terrible investment — if it falls steadily for its own reasons rather than the market's, beta will not see it coming. Equally, a high-beta share is not badly run; it is simply more exposed to the market's mood.
Beta is also backward-looking. It is calculated from past price movement, and a company that changes materially — a large acquisition, a new debt load — may not behave like its own history.
Related
- Volatility measures the size of a share's swings without reference to the market.
- The Sharpe ratio asks whether the swings were rewarded.