Beta Risk

Beta is like a little angel dressed in a spiffy, three-piece suit that sits on the shoulder of an investor cautioning her against investing in certain stocks.

Beta, or risk, is the tendency of the returns on an investment to respond to changes in the market on which it is traded. If the market is bouncing around like a frog in a bouncy house, a stock with a high beta value will also have its returns experience a roller coaster's worth of ups and downs. A low beta stock on the same wildly variable market will still show variation in its returns, but much less variation than the market itself. High beta stocks can be risky...all boom or bust. Low beta stocks are less volatile and more stable.