Learn the stock market › Volume and volatility › Lesson 3 of 5

What is beta?

Short answerBeta says how much a stock has moved on average when the market moved one percent. A beta of 1 means as much as the index, 0.5 half and 2 twice as much. Among the 20 largest US companies, counted from Nov 6, 2021, Exxon Mobil has the lowest beta, 0.37, and AMD the highest, 2.24.

How beta is worked out

Beta compares the stock's daily moves with the index on the same days, and it splits into two parts. The first is how much the stock swings against the index: the stock's volatility divided by the index's. The second is the correlation, how closely they move the same way. A correlation of 1 means always in step and 0 no link at all. Beta is the two parts multiplied.

Company	Beta	Swing against the index	Correlation
Exxon Mobil	0.37	1.56	0.24
Walmart	0.40	1.33	0.30
Eli Lilly	0.56	1.92	0.29
Berkshire Hathaway	0.58	1.01	0.57
Costco	0.66	1.34	0.49
Visa	0.79	1.33	0.60
Mastercard	0.86	1.39	0.62
JPMorgan Chase	0.88	1.43	0.62
Microsoft	1.15	1.66	0.69
Apple	1.16	1.64	0.71
Netflix	1.20	2.56	0.47
Alphabet	1.26	1.90	0.66
Oracle	1.28	2.63	0.49
Amazon	1.51	2.14	0.70
Meta	1.61	2.65	0.61
Broadcom	1.69	2.63	0.64
Tesla	2.07	3.49	0.59
Palantir	2.12	3.92	0.54
Nvidia	2.16	3.03	0.72
AMD	2.24	3.42	0.66

Daily moves from Nov 6, 2021 against the S&P 500, which leaves out dividends. Beta is the swing against the index times the correlation.

12 of the 20 companies have a beta above 1. On average they moved more than the index.

A wild stock with a low beta

Beta and volatility are not the same thing. Eli Lilly swung 1.92 times as much as the index, but the correlation was only 0.29. Most of its moves had nothing to do with the market. 1.92 times 0.29 gives a beta of about 0.56, below 1, even though the stock swung more than the index.

The reverse holds for companies that follow the market closely. There the correlation is high and the beta close to the ratio of the swings.

Beta changes

Beta is worked out on days that have already happened. Split the five years in two halves, and the beta changed by at least 0.3 for 10 of the 20 companies. Netflix changed most, from 1.54 in the first half to 0.74 in the second. A beta says how the stock has followed the market, not how it will.

Test yourself

A stock has a beta of 0.5. The market falls 4% one day. What do you know?

More figures are on the page for Eli Lilly.