Beta

Beta quantifies how sensitive an investment is to broad market movements. The market (usually the S&P 500) has a beta of 1.0 by definition. A stock with a beta of 1.5 tends to move 50% more than the market — if the market rises 10%, the stock rises about 15%, and vice versa for declines.

High-beta stocks (beta > 1.0) include technology companies, small-cap stocks, and high-growth companies. These offer amplified upside in bull markets but amplified downside in bear markets. Low-beta stocks (beta < 1.0) include utilities, consumer staples, and healthcare — more stable but with less growth potential.

Beta is useful for portfolio construction. If you want a more aggressive portfolio, tilt toward high-beta holdings. For a conservative portfolio, favor low-beta assets. Understanding your portfolio's overall beta gives you a sense of how much it will swing relative to the market.

The limitation of beta is that it only measures systematic risk (market risk), not total risk. A company could have a low beta but face significant company-specific risks (like regulatory challenges or competitive threats) that beta doesn't capture. Beta also uses historical data and may not predict future volatility accurately.

Crypto assets typically have very high betas relative to the overall market, though measuring crypto beta against the S&P 500 is somewhat misleading since they're driven by different factors. Bitcoin often has a beta significantly above 1.0 relative to stocks, meaning it amplifies both gains and losses.