Beta
Beta measures how much a stock or fund tends to move relative to the overall market; a beta of 1 means it moves in line with the market.
Beta is calculated by comparing an investment's returns with a benchmark, usually the S&P 500, over a past period. A beta above 1 means the investment has historically moved more than the market; below 1 means less; and a negative beta means it has tended to move in the opposite direction.
Example: a stock with a beta of 1.5 has, on average, risen about 15% when the market rose 10% and fallen about 15% when the market fell 10%. A utility stock with a beta of 0.5 would typically have moved only about half as much.
Beta measures systematic risk, the part of risk linked to the overall market that diversification cannot remove. It plays a central role in the Capital Asset Pricing Model (CAPM), which estimates expected returns based on market sensitivity.
Beta has limits. It is backward-looking, depends on the time period and benchmark chosen, and says nothing about company-specific risks. A low-beta stock can still fall sharply on its own bad news.