Beta is a measure of a stock's volatility in relation to the overall market. A beta of 1.0 means the stock moves in line with the market. A beta greater than 1.0 indicates the stock is more volatile than the market, while a beta less than 1.0 means it is less volatile.
For example, a stock with a beta of 1.5 would be expected to rise 15% when the market rises 10%, but also fall 15% when the market drops 10%. Conversely, a stock with a beta of 0.5 would only move 5% in either direction for the same market movement.
Beta is useful for investors constructing portfolios with a specific risk profile. Aggressive investors might prefer high-beta stocks for greater potential returns, while conservative investors might choose low-beta stocks for stability.