Beta measures the sensitivity of a stock to movements in the reference market. A beta of 1 indicates that the stock moves in line with the market, a beta greater than 1 means it is more volatile, and a beta less than 1 means it is less risky.
It is used in the asset valuation model (CAPM / MEDAF) to calculate the cost of equity and the expected profitability of an investment based on its systematic risk.
How to read a beta
Le bêta compare la volatilité d'une action à celle de son indice de référence (le CAC 40 ou le S&P 500, par exemple). C'est une mesure du risque systématique · celui qu'on ne peut pas éliminer par la diversification.
Role in the CAPM model
In the asset valuation model, beta links the expected return of an asset to its risk-taking relative to the market:
The higher the beta, the greater the return investors demand as compensation for the additional risk taken.