What does a stock's beta measure?

Prepare for the NGPF Personal Finance – Investing Test with multiple choice questions, hints, and explanations. Boost your financial literacy and investment skills. Get exam-ready!

Multiple Choice

What does a stock's beta measure?

Explanation:
Beta measures how a stock moves in relation to the overall market. It tells you how sensitive a stock’s price is to market swings and reflects systematic risk you can’t diversify away. When beta is greater than 1, the stock tends to be more volatile than the market—it often moves more dramatically in response to market changes. If beta is less than 1, the stock is typically less volatile than the market. A beta around 1 means it tends to move with the market. This concept helps investors gauge market risk exposure, not the company’s dividend yield, which is a separate metric, nor the stock’s liquidity risk or the quality of management.

Beta measures how a stock moves in relation to the overall market. It tells you how sensitive a stock’s price is to market swings and reflects systematic risk you can’t diversify away. When beta is greater than 1, the stock tends to be more volatile than the market—it often moves more dramatically in response to market changes. If beta is less than 1, the stock is typically less volatile than the market. A beta around 1 means it tends to move with the market.

This concept helps investors gauge market risk exposure, not the company’s dividend yield, which is a separate metric, nor the stock’s liquidity risk or the quality of management.

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