Beta
Measures how much the stock moves relative to the market — systematic risk.
Beta quantifies systematic risk: how sensitive a stock is to broad market movements. Beta = 1 means the stock moves in line with the market (S&P 500). Beta > 1 means amplified moves (high-beta/aggressive). Beta < 1 means dampened moves (low-beta/defensive). Calculation: Regress stock excess returns on market excess returns; beta is the slope. Sector examples: Tech stocks 1.2-1.5 (cyclical, high growth), Utilities 0.5-0.8 (defensive, stable), Consumer staples 0.6-0.9, Financials 1.0-1.3. Use: CAPM cost of equity = Rf + β×(Rm − Rf). Higher beta requires higher expected return to compensate for risk. Limitation: Assumes linear relationship and stable correlations — both can break down in crises.
Formula