Beta measures how sensitive a stock or portfolio is to movements in the overall market. The market itself has a beta of 1.0.
- Beta = 1.0 — moves roughly in line with the market.
- Beta > 1.0 — amplifies market moves (a beta of 1.3 tends to move ~30% more than the market, up and down).
- Beta < 1.0 — dampens market moves; more defensive.
- Beta < 0 — moves opposite to the market (rare).
Why beta matters for your portfolio
Portfolio beta tells you how much market risk you are carrying. A high-beta portfolio will feel great in a rally and brutal in a correction. Matching your portfolio beta to your risk appetite is a core part of analyzing your portfolio. Beta captures *market* risk only — it says nothing about company-specific risk, which diversification addresses.