Beta

Beta measures how much a stock tends to move relative to the overall market: a beta of 1.0 moves with the market, 1.5 amplifies it by half, and 0.5 dampens it by half. Statistically it is the covariance of the stock's returns with the market's, divided by the variance of the market — the slope of the regression line through their paired returns, typically computed over 2-5 years of weekly or monthly data.

Beta captures systematic risk only, the part of a stock's movement explained by the market. A biotech can have a low beta and still be wildly volatile — its swings just are not correlated with the index. That distinction is why beta and volatility are different columns on every screener.

It also feeds valuation directly: CAPM sets the cost of equity as risk-free rate + beta x equity risk premium, so beta assumptions flow straight into WACC and DCF outputs. The limitation is stability — beta is backward-looking, varies with the window used to compute it, and can shift when a business changes character (a money-losing grower that turns profitable often sees its beta compress).