What does beta measure in finance?

Beta is a financial metric that measures the sensitivity of a security's returns to fluctuations in the overall market. Essentially, it evaluates how much the price of a particular stock moves in relation to changes in the market index, typically represented by a benchmark like the S&P 500. A beta greater than one indicates that the stock is more volatile than the market, meaning it tends to experience larger price swings in response to market movements. Conversely, a beta less than one indicates that the stock is less volatile than the market. This relationship helps investors understand the risk associated with a stock in the context of broader market movements, guiding their investment decisions based on their risk tolerance and market outlook.