Beta
How much a security moves relative to the overall market.
What is Beta?
A beta of 1.0 means the security tends to move with the market. Above 1.0 is more volatile, below 1.0 less. Beta measures only systematic risk and says nothing about whether the return earned for that risk was adequate.
Beta: a worked example
Beta 1.4 implies roughly a 14% move for every 10% market move, in either direction.
What is the difference between Beta and Alpha?
Beta = how much market risk you took. Alpha = how much return you earned beyond what that risk explains.
Often confused with Alpha - see Beta vs Alpha side by side.
More terms in Risk & Return
Systematic Risk (Market Risk)
Risk affecting the whole market that diversification cannot remove.
Unsystematic Risk (Specific Risk)
Company- or industry-specific risk that diversification can eliminate.
Alpha
Return above what the portfolio's risk exposure would predict.
Standard Deviation
How widely returns disperse around their average.
Sharpe Ratio
Excess return per unit of total volatility.
Correlation
How closely two assets move together, from -1 to +1.
Diversification
Spreading capital across assets so no single failure is fatal.
Maximum Drawdown
The largest peak-to-trough decline over a period.