Beta

Beta is a measure of assessing an investment's risk and expected return compared to the overall market, represented by the slope of the line in a scatterplot.

Beta shows the relative movement of a stock's price to market movements.

A beta of one suggests the stock moves with the market. A beta above one indicates greater volatility, appealing to risk-tolerant investors looking for higher returns, and a beta below one indicates less volatility and is suitable for risk-averse investors.

Consider Salt Corporation's stock, compared to the benchmark of the S&P five hundred.

Suppose Salt Corporation's beta is one point eight, meaning it is eighty percent more volatile than the market. When the S&P five hundred increases by five percent, Salt Corporation's stock price might be expected to rise by nine percent.

However, if the S&P five hundred falls by five percent, Salt Corporation's stock price could decrease by nine percent.

This volatility reflects the aggressive growth expectations and the high-risk nature of Salt Corporation's business compared to others.

Beta helps investors to assess the risk a stock adds to a portfolio.