The beta of a security or portfolio is a measure of its volatility relative to the market, i.e. its sensitivity to changes to the market, or statistically the covariance of a stock to the market. The market has a beta of 1. A beta above 1 signifies that a stock is more volatile than the market. If the market rises 5% and a stock rises 10%, it has a beta of 2, so if the market fell 5%, the stock would be expected to fall 10%. The beta can be negative. Negative beta assets have a negative covariance with the market, in other words if the market rises, the asset price is expected to fall and vice versa.

Related terms