Glossary

Beta

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Beta is a measure of the volatility of a stock or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which is used to describe and price risky securities based on their volatility compared to the rest of the market, the risk of those assets, and the cost of capital.

Beta represents the slope of the regression line through a plot of data points. Each of these data points represents an individual stock’s returns against those of the market as a whole. Beta data provides an indication of how much risk will be added to a portfolio by including the security, based on the security’s returns as it corresponds to the market. Therefore, for beta to be meaningful, it should be compared to a related market.

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