How can you measure and interpret the market risk, or beta, of a security?

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How can you measure and interpret the market risk, or beta, of a security?



Answer: The contribution of a security to the risk of a diversified portfolio depends on its market risk. But not all securities are equally affected by fluctuations in the market. The sensitivity of a stock to market movement is known as BETA. Stocks with a beta of greater than 1.0 are particularly sensitive to market fluctuations. Those with a beta of less than 1.0 are not so sensitive to such movements. The average beta of all stocks is 1.0.

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