A beta of 1 means the security tends to move in line with the market; above 1 means it is more volatile than the market; below 1 means less volatile. A negative beta moves opposite to the market. Beta is the risk input in the Capital Asset Pricing Model (CAPM).
Formula
Beta = Covariance(Asset, Market) ÷ Variance(Market)
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Example
A stock with a beta of 1.5 would be expected to rise ~15% if the market rises 10%, and fall ~15% if it drops 10%.
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Relevant NISM series
CFANISM Series XV
See Beta in exam questions
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