What does a high beta signify about a stock's behavior?

A high beta indicates that a stock is more volatile than the overall market. Specifically, it reflects the stock's tendency to experience greater fluctuations in price compared to broader market movements. When the market moves, a stock with a high beta will typically move in the same direction, but to a larger extent. For instance, if the market increases by a certain percentage, a high beta stock might increase by an even larger percentage, and conversely, if the market decreases, the stock could drop by a larger percentage than the market.

This characteristic makes it clear that stocks with high beta are associated with greater risk. They can offer the potential for higher returns in a growing market, but they also present a significant risk in down markets due to their amplified price movements. This behavior is particularly important for investors who are assessing their risk tolerance and considering how a stock may fit into their overall investment strategy.