Beta is an assessment of a stock’s tendency to undergo price changes, or its volatility, as well as its potential returns compared to a market benchmark.

Beta measures how volatile a stock’s price may be in relation to a market benchmark, such as S&P 500. Beta relies on past stock price information and past stock price performance is never a guarantee of stock performance in the future.

A good beta calculation requires that the benchmark must be as related to the stock as possible.

A stock with a beta greater than 1 may indicate that it’s more volatile than the market benchmark. This could also mean it has the potential for stronger returns. Stocks with a high beta are more prone to swings than the market benchmark and can have greater returns than the market average. Conversely, stocks with a high beta also mean that they are riskier investments.

A stock with a beta equal to 1 assumes its price moves hand-in-hand with the market benchmark.

A stock with a beta between zero and one means that they are less volatile than the overall market. This means that the stock is less excitable than the average market. Such stocks can be reliable investments, because they are unlikely to generate losses, but they also won’t create significant gains. Low stock beta scores are common for investments like utilities.

Betas below zero or negative indicate that the stock may respond in the opposite direction of the overall market. Investors should expect the stock’s price to go up if the market benchmark goes down and vice versa.

A beta of zero suggests that a stock acts independently of the overall stock market.

Beta can be a useful metric to determine how a stock’s price may move in relation to the overall market by examining its past performance. It can also be a useful indicator of risk.