How to Interpret a Beta Coefficient

Beta coefficients measure the volatility of a security relative to the overall market.
••• Calculator image by Alhazm Salemi from

A beta coefficient is calculated by a mathematical equation in statistical analysis. The beta coefficient is a concept that was originally taken from a common capital asset pricing model that shows an individual asset's risk as compared to the overall market. This concept measures how much the particular asset shifts in relation to a broader spectrum. The beta coefficient can be helpful in trying to predict a particular stock's tendencies and calculate the overall risk.

    Analyze the data in question. If a particular asset carries a beta coefficient of 1, it has about the same volatility as the relevant market benchmark, meaning the security shifts less than the overall market index.

    Look at beta coefficients above 1. Betas above 1 indicate the asset is more volatile and pose a higher risk. They are shifting more than the market as a whole.

    Understand to what the beta coefficient is compared. For all U.S. assets, a specific stock's beta coefficient generally measures its volatility against the S&P 500 index. For example if a stock generally moves five percent for every one percent change in the S&P 500, it has a beta coefficient of 5. This is a higher risk and shifts more than the market as a whole. This particular stock might offer a greater return than those with lower betas, but it poses a much higher risk.


    • The beta coefficient should only be used as a guide and does not predict the future.

Related Articles

How to Calculate Levered Beta
How to Calculate P-hat
How to Graph a Security Market Line
How to Use the Pearson Correlation Coefficient
How to Average Likert Scales
How to Report Z-Score Results
How to Calculate the Coefficient of Variation
How to Calculate Percent Relative Range
How to Calculate Significance
How to Calculate Price Per Share of Common Stock
What Is Gaussian Distribution?
How to Calculate the Percentage of a Number
How to Calculate an Unknown Total When You Know the...
How to Find the Z Score on a TI-83
How to Calculate Binomial Probability
What Is the Purpose of Factor Analysis?
How to Calculate Average Revenue
How is Calculus Used in Economics?
How to Calculate Discrete Returns
How to Calculate the Percentage of Another Number