What does beta indicate about an investment?

Beta is a measure that indicates the risk associated with an investment in relation to the overall market. Specifically, it assesses how much the price of an asset is expected to move in response to changes in the market. A beta of 1 suggests that the asset moves in line with the market, while a beta greater than 1 indicates greater volatility — meaning the asset is likely to experience larger price swings compared to the market. Conversely, a beta of less than 1 suggests that the asset is less volatile than the market.

Understanding beta is crucial for investors who want to gauge the relative risk of their investment portfolios. It allows them to make informed decisions about how much market risk they are willing to accept, and helps them think about how individual investments will react in different market conditions.