Beta is the measurement of volatility or systematic risk of a particular security in comparison to the market or the market index.
Beta is used in the Capital Asset Pricing Model (CAPM) to calculate the expected return of an asset or security based on the beta and expected market return.
A beta of 1 for a particular stock indicates the same volatility as the market and the price of that particular stock will move with the market. A beta less than 1 indicates less volatility and a beta greater than 1 indicates higher volatility. If any stock’s beta is 1.5, it will be 50% more volatile than the market.
Normally FMCG companies have less than 1 beta and Bank/Real estate companies (interest rate sensitive) have greater than 1 beta value.
Beta will be explained in detail in the portfolio management section.