Beta (β)
Private Equity glossary · Valuation, Diligence, & Value Creation
Definition
Measure of systematic risk; the sensitivity of a security's return to market movements.
Beta (β) in plain English
Beta measures how much a particular stock tends to swing when the overall market swings — it's a gauge of "you're along for the market's ride" risk. A beta of 1 means the stock roughly moves in step with the market; a beta of 2 means it tends to jump or drop about twice as hard, while 0.5 means it's about half as jumpy. Picture the market as the ocean and each stock as a boat: a high-beta boat rocks violently with every wave, a low-beta boat barely notices. Investors care because higher beta means bigger potential swings both up and down — more thrill, more danger.
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