Beta.

In plain English

Beta is a statistical measure of how a stock's returns move relative to the broad market (usually the S&P 500). A beta of 1.0 means the stock has historically moved in line with the market. A beta of 1.5 means it swings about 1.5 times as much (up or down). A beta below 1.0 means smaller swings; a beta of zero means uncorrelated; a negative beta means inverse moves. Beta is a backward-looking statistic calculated from past returns, so it describes the past, not the future.

01Why it matters

Beta is the simplest single-number measure of how aggressive a stock is. A high-beta portfolio amplifies whatever the market does, including the bear markets. Investors who did not realize their tech-heavy holdings carried betas of 1.4 to 1.8 often discovered the math during 2022's drawdown.

02The math, step by step

Tesla has historically run a beta around 1.6 to 2.0, meaning a 10% market move tends to produce a 16% to 20% Tesla move. A utility stock like Duke Energy has a beta around 0.3 to 0.5, meaning a 10% market move tends to produce a 3% to 5% Duke Energy move.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.