Beta

How jumpy is this stock?

Understanding if a stock moves more or less than the market
Modified

September 7, 2025

Category: Analysis & Research
Difficulty: Beginner

Definition

A number that shows if a stock is jumpier or steadier than the market. Like measuring how wild a roller coaster is.

How Beta Works

Beta 1.0 = Stock moves same as market Beta 2.0 = Stock moves TWICE as much as market Beta 0.5 = Stock moves HALF as much as market

Real Examples

Market goes up 10%: - High beta stock (2.0): Up 20% - Average stock (1.0): Up 10% - Low beta stock (0.5): Up 5%

Market crashes 20%: - High beta stock (2.0): Down 40% - Average stock (1.0): Down 20% - Low beta stock (0.5): Down 10%

Beta Ranges

Wild Stocks (Beta Above 1.2)

Examples: Tesla, Netflix, small tech companies - Bigger price swings - More potential gains - More potential losses - More stress

Normal Stocks (Beta 0.8 to 1.2)

Examples: Apple, Microsoft, most big companies - Move with the market - Balanced risk and reward - Most stocks fall here

Steady Stocks (Beta Below 0.8)

Examples: Electric companies, Walmart, Coca-Cola - Smaller price swings - More predictable - Less exciting gains - Better for nervous investors

What Beta Really Means

Risk Guide

  • High beta = wilder ride
  • Low beta = smoother ride
  • Beta doesn’t tell you if stock goes up or down
  • Only tells you how bumpy the ride will be

Age Matters

  • Young people: Can handle high beta (have time to recover)
  • Older people: Want low beta (can’t afford big losses)
  • Middle-aged: Mix of both

Real Company Examples

Roller Coaster Stocks (High Beta)

  • Tesla: Beta around 2.0 (super wild)
  • Netflix: Beta 1.2-1.5 (pretty wild)
  • Small tech stocks: Beta 1.5-2.5 (extremely wild)

Boring Stocks (Low Beta)

  • Electric companies: Beta 0.3-0.7 (very steady)
  • Walmart: Beta 0.4-0.6 (steady)
  • Johnson & Johnson: Beta 0.6-0.8 (fairly steady)

Beta’s Limits

What Beta Can’t Do

  • Based on old data (past doesn’t predict future)
  • Changes over time
  • Doesn’t tell you if stock goes up or down
  • High beta doesn’t guarantee higher profits
  • Doesn’t tell you if company is good or bad

Beta Isn’t Everything

  • Just one piece of the puzzle
  • Good companies can be wild (high beta)
  • Bad companies can be steady (low beta)
  • Don’t buy stocks based on beta alone

How to Use Beta

Play It Safe (Low Beta)

  • Beta under 1.0
  • Less stress, easier to sleep
  • Good for older folks
  • Examples: Utilities, big consumer companies

Go for Growth (High Beta)

  • Beta over 1.0
  • More exciting, more scary
  • Good for young people
  • Examples: Tech stocks, small companies

Mix It Up

  • Some wild stocks, some boring stocks
  • Balance based on your age and stomach

Beta Guidelines

For Beginners

  • Start with beta under 1.0
  • Learn with steadier stocks first
  • Remember: boring can be good

Warning Signs

  • Beta over 2.5 = extremely wild
  • Negative beta = moves opposite to market (weird)
  • Beta changing rapidly = unstable company

Simple Rules

  • Check beta before you buy
  • Match beta to your comfort level
  • Buy less of high-beta stocks
  • Don’t stress if you can’t handle the swings

The Bottom Line

Beta is just a way to measure how jumpy a stock is compared to the market. Higher numbers mean wilder rides.

Remember: Beta doesn’t tell you if a stock will make money, just how bumpy the journey will be.

External Resources