In terms of investment risk, what does a beta of less than 1 indicate?

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A beta of less than 1 signifies that the investment tends to move less than the market does in response to market changes. This means that if the overall market experiences volatility, an investment with a beta below 1 is expected to have smaller price fluctuations. For instance, if the market's returns increase or decrease, an investment with a beta of 0.8 may only change by 0.8 times the market movement. Therefore, this indicates that such an investment is less volatile than the overall market, making it potentially a safer option during turbulent market conditions.

In contrast, a beta greater than 1 suggests that the investment is more sensitive to market movements, while a beta of exactly 1 indicates that the investment's price would match the market's volatility. A beta of zero would imply that the investment's returns are uncorrelated with market movements, but this does not relate to the concept of volatility in the same way. Hence, the characterization of lower volatility with a beta under 1 is accurate.

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