Beta

Beta measures the correlation and sensitivity of a stock's price movements relative to a benchmark, typically the S&P 500. A beta of 1.5 means the stock historically moves 50% more than the market, so when the index rises 10%, the stock tends to rise 15%, and vice versa on the downside. Stocks with beta above 1 include high-growth technology names and small-caps, while low-beta stocks (utilities, consumer staples) tend to be more defensive and less sensitive to broad market swings. Beta is calculated from historical price data, meaning it reflects past relationships and may not accurately predict future behavior, especially after significant business or sector changes. Portfolio construction often uses beta to balance exposure, pairing high-beta growth positions with lower-beta defensive holdings can moderate overall portfolio volatility.