Beta

Beta is a measure of the systematic risk of a security that cannot be avoided through diversification. Beta is a relative measure of an individual stock’s risk relative to all stocks’ market portfolios.

It is important to note that beta measures a security’s volatility, or fluctuations in price, relative to a benchmark, the market portfolio of all stocks, such as the SENSEX or NIFTY.

Beta helps compare the relative systematic risk of different stocks and, in practice, is used by investors to judge a stock’s riskiness. Stocks can be ranked by their betas. Because the market variance is a constant across all securities for a particular period, ranking stocks by Beta is the same as ranking them by their absolute systematic risk. Stocks with high betas are said to be high-risk securities.