Glossary·Written by a CPA
Beta
A measure of how much a stock has tended to move compared with the overall market, usually the S&P 500.
Beta is a number that tells you how jumpy a stock has been relative to the market. A beta of 1 basically just means it has tended to move about in line with the market, above 1 means it has moved more, and below 1 means it has moved less.
It's like comparing a speedboat to a cruise ship on the same waves. Both feel the water, but one bounces around a lot more.
For you, beta can help you understand why a stock you own swings so much on days the market is only a little up or down. It's a description of the past, though, not a promise about the future.
Example. As an example, if a stock has a beta of 1.5 and the market drops 10%, the stock has historically tended to drop about 1.5 times 10%, which is roughly 15%. That's a tendency, not a rule.
The catch. Beta is calculated from past prices, so it can change a lot when a company's business or the market environment changes.
Cheat sheet
Free to save and share. Tap the image to open it full size.
Related terms
This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.