Beta
Beta measures how much a share's price has tended to move compared with the market as a whole, usually a main index such as the Nifty 50. A beta of 1 means it has moved in step with the market. Above 1 means it has swung more, and below 1 means it has swung less.
How to read beta
A beta of 1 means the share has gone up and down about as much as the market. A beta of 1.5 means it has tended to move about one and a half times as much, in either direction. A beta of 0.5 means about half as much. A negative beta is rare and means a share has tended to move the other way.
How it is worked out
Beta is calculated from past returns, by comparing the share's moves with the index's moves over a set period, such as the last few years. It relates to correlation: it describes both how closely the two move together and how large the share's moves are by comparison.
What it does not tell you
Beta looks backwards, and it changes with the period and the index chosen, so different websites show different betas for the same share. It measures only sensitivity to the market. It says nothing about risks specific to the company, such as a bad result or a legal case, and a low beta does not mean low risk.
Beta and diversification
Beta describes the part of a share's risk that comes from moving with the market, which diversification cannot remove. That is why it is used when people look at how a share fits into a wider portfolio.
A share with beta 1.5 (hypothetical numbers)
Suppose the market index rises 4 percent in a month. A share with a beta of 1.5 would, on average, be expected to rise about 6 percent. If the index fell 4 percent, the same share would be expected to fall about 6 percent. This is an average tendency from the past, not a forecast, and any single month can differ.
Common questions
- What does beta mean in simple words?
- How much a share has tended to move compared with the market.
- What does a beta of 1 mean?
- The share has moved in step with the market.
- Does a low beta mean a safe share?
- No. A low beta only means it has moved less than the market. It can still carry large risks of its own.
- Why do different sites show different betas?
- Beta depends on the index and the time period used, so the figures differ.