Beta
Certified Financial Planner glossary · Certified Financial Planner
Definition
A measure of a security’s systematic risk relative to the market portfolio.
Beta in plain English
A stock tends to move about 1.4% when the market moves 1%. That relative sensitivity is beta: systematic risk versus the market portfolio. Diversification can wash out idiosyncratic noise, but it cannot delete beta. CAPM prices beta, not standalone standard deviation. Whenever a stem flashes volatility yet asks for systematic risk or a required equity return, switch from total risk to beta before you pick a risk premium. A beta of 1 tracks the market; above 1 amplifies market swings.
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