What Is Beta in Stocks? Meaning, Formula, and How to Calculate

Beta measures how much a stock's returns have moved, on average, for each 1% move in a benchmark such as the S&P 500.
Above 1 means it swings more than the market
Below 1 means it swings less
Below 0 means it moves the opposite way.

A beta in stocks means how much a stock's returns have moved on average, compared to each 1% move in a benchmark index.

To prevent ambiguity, "Beta" could also mean the Greek letter ("β"), as well as a pre-release stage in software development. This article is strictly talking about beta as a measurement used in investing.

What Is Beta in Stocks?

Beta coefficient is a number that shows whether a stock is, on average, moving along with the market, against the market, or unrelated to the market. It shows how a stock tends to move when the market moves.
Imagine you plot a chart. Each dot is one period (say, one month). Left to right is how much the market moved. Up and down is how much your stock moved. You draw the best-fitting straight line through all the dots. The steepness of that line is the beta.

A steep line (beta above 1) means the stock swings harder than the market.
A gentle line (beta below 1) means it swings less.
A line at 45 degrees (beta of 1) means it moves about the same as the market.

For US stocks, a beta value is usually measured against the S&P 500. See this illustration below:

How to read a beta value

The main goal of reading a beta value is to see how and how much a stock move compared to the market. Your question would be: does this stock moves with the market? Does it amplify the market movement? Does it go against it, or is it not related at all?

Keep in mind that beta is only a historical average of how a stock has moved relative to an index, so you cannot expect a monthly movement to reflect exactly that number. A stock with a beta of 1.5 will not exactly rise 15% when the index rises 10%; it only means that historically, it has moved 1.5x compared to the index on average.

Beta	Description	If the index moved +10%	Example
Below 0 (negative)	Moves opposite to the index	-1 gives about -10%	Inverse funds, put options
0	No correlation with the index	0% on average	Cash
Between 0 and 1	Similar movement with index but less	0.5 gives about +5%	Utilities, consumer goods
Exactly 1	Moves in the same direction with the index	About +10%	Broad index funds
Above 1	Same direction with index but higher swing	2 gives about +20%	Tech, small cap stocks

Note: a beta measured against the Dow Jones Industrial Average can differ from one measured against the S&P 500, or any other index for that matter.

Why is Beta important in stocks?

People read beta coefficient, to know what to expect from a stock compared to the market. Beta can be an indicator of how much market-wide risk a stock is carrying. A beta number cannot represent company-specific risks such as performance, management changes, and others.

A stock with low beta coefficient, even large blue-chip stocks, can still carry heavy company-related risks. For example: a company which usually put out staple consumer products, can perform badly if it launches a completely new product with heavy investment, and fails.

Beta vs volatility

Remember that beta coefficient does not show the volatility of a stock itself. Think about it this way: volatility measures how much a stock’s price swings overall. Beta measures only how much of that movement is tied to the market.

Look at these examples:

High volatility, low beta: A small biotech whose price moves 30% when it publishes a trial result of a new medication. Those moves have little to do with the S&P 500, so while it's very volatile, the beta coefficient stays near 0 or even negative.
moderate volatility, beta above 1: A steady stock that moves moderately but closely to the market, can have a beta above 1.

Example	Volatility (annual)	Beta	Reason
Single-drug biotech	70%	0.3	Price fluctuates on trial results, no matter what happens to the market
Utility company	15%	0.5	Moves with the market
Broad index fund	16%	1.0	The benchmark
Large cyclical (carmaker, airline)	35%	1.4	Swing follows the economy and the market
Consumer-goods firm in a sell-off	20%	1.1	Tracks the market, moderate volatility but with beta above 1

Let's simulate a hypothetical monthly data here: Suppose the S&P 500 moves +4%, -3%, +2%, -5%, +6% over five months.

Stock A (the biotech) moves +25%, -18%, -22%, +30%, +10%. Huge swings but not related to the market, so the best-fit line is nearly flat and beta is close to 0.
Stock B (a cyclical) moves +6%, -4%, +3%, -7%, +9%. Smaller swings than A, but they line up with the market’s direction almost every month and are about 1.4 times as large, so beta is about 1.4.

Pay attention on how Stock A is far more volatile, yet Stock B has the higher beta.

The Beta Formula

β = Covariance (Re, Rm) / Variance (Rm)

where:

Re = the return on an individual stock

Rm = the return on the overall market

Covariance = how changes in a stock’s returns are related to changes in the market’s returns

Variance = how far the market’s data points spreadout from their average value

Calculating beta in a spreadsheet

1. Collect monthly returns data

Collect data of monthly returns (not prices!) in columns, one row per period, with the market and the stock on the same dates. We will use fictional data of "S&P 500 vs Stock B" from our previous example here.

A	B	C
Month	S&P 500	Stock B
1	4%	6%
2	-3%	-4%
3	2%	3%
4	-5%	-7%
5	6%	9%

2. Use SLOPE

=SLOPE(C2:C6, B2:B6)

The first range is the stock (the up-and-down axis) and the second is the market (the left-to-right axis). This returns about 1.44, matching the estimation of 1.4 and above. It works in both Excel and Google Sheets.

3. Optional cross-checks

Covariance over variance, matching the formula from earlier: =COVARIANCE.S(C2:C6, B2:B6) / VAR.S(B2:B6). In Excel, both must use the same basis, either sample (.S) or population (.P). Mixing them gives a wrong answer.
Correlation times volatility ratio: =CORREL(C2:C6, B2:B6) * STDEV.S(C2:C6) / STDEV.S(B2:B6)
Alpha (where the line crosses the vertical axis): =INTERCEPT(C2:C6, B2:B6)
How much of the stock’s movement the market explains: =RSQ(C2:C6, B2:B6). A low value means most of the movement is company-specific, so beta describes the stock poorly.

Avoiding common mistakes

Always use returns and not prices
Make sure the stock goes first and the market second, do not get it reversed
Make sure the dates are aligned
Real life estimates need way more data points than just five months

You can also use our beta calculator here:

Why the Same Stock Shows Different Betas on Different Sites

Different sources and analysts may show different beta coefficients for the same stock, and all of them can be correct. It all depends on which dataset they decide to use in calculating the numbers.

There is no right or wrong, as long as the calculation is done correctly. It is up to the reader to judge which beta coefficient represents a stock the best.

Variable	Options	Results
Timeline	1, 2, 3 or 5 years	1 year reflects recent behavior but has the most noise. 5 years is standard but slow to reflect changes (acquisition, debt)
Frequency	Daily, weekly, monthly	Daily gives the most data points, but stale prices in thinly traded stocks can drag beta down. Monthly avoids most noise but gives fewest data points.
Benchmark index	S&P 500, a broader US index, a global index, a sector index	A tech stock can show a different beta against the S&P 500 than a tech-heavy index.
Raw vs adjusted	Raw regression beta, or a version pulled toward 1	An adjusted beta blends the raw estimate with 1.0.

Typical Betas by Industry

Investors may want to look at typical beta coefficients across different industry sectors. A dataset by Aswath Damodaran (NYU Stern) gives a table of betas, classified by sectors, among US stocks. Note that the table was updated in January 2026, and contains data for industries such as semiconductor, Auto & Truck, Software, and more. These are industry averages, and not single-stocks.

Industry	Firms	Beta	Debt/equity	Unlevered beta corrected for cash*
Semiconductor	66	1.52	2.59%	1.50
Auto & Truck	33	1.46	19.70%	1.31
Software (System & Application)	309	1.28	5.58%	1.25
Total Market	5,994	0.91	35.17%	0.76
Precious Metals	56	0.84	7.28%	0.83
Food Processing	78	0.61	43.73%	0.47
Banks (Regional)	568	0.40	52.10%	0.37
Utility (General)	14	0.24	81.48%	0.15

*Beta with the effect of the industry's debt removed, and then adjusted for the cash firms hold, so it reflects the risk of the operating business alone.

Negative Beta and Zero Beta

What about zero, and negative betas? Keep in mind that a negative beta is rare in real life. Few assets are designed to move against the market, such as inverse funds or put options. Even precious metals companies have a positive beta (see the table above).

A negative beta on an ordinary stock usually reflects something unusual in the measurement period, while zero beta means no relationship with the market, and not that the stock has zero risk.

How Investors Use Beta

Investors use beta to consider their portfolio's movement tendency compared to the market, return rates of assets relative to their market risks, and measuring their risk profile versus risk tolerance.

Portfolio beta

Portfolio beta is, simply, the weighted average of the holdings' betas. Each holding's weight is its share of the total investment portfolio.

Example:

Holding	Weight	Beta	Weight × beta
A	50%	1.2	0.60
B	30%	0.8	0.24
C	20%	0.4	0.08
Portfolio	100%		0.92

This example suggests that the portfolio tended to move slightly less than the market. An investor may or may not want to change their portfolio when looking at such data.

Beta in the CAPM

Investors can also use capital asset pricing model, and use beta to estimate the return an asset should offer for its market risk. The formula would be:

Required return = risk-free rate + beta × (expected market return − risk-free rate)

Hypothetical inputs: a 4% risk-free rate, a 9% expected market return and a beta of 1.2.

Required return = 4% + 1.2 × (9% − 4%) = 4% + 6% = 10%

The number 10% is a "required" return for that level of market risk, according to the formula. Analysts use this figure mostly to set a cost of equity when valuing a company. Note that this is a tool of estimation, and not a hard rule.

Beta and risk tolerance

Beta is also a rough way to relate a portfolio to the swings an investor can live with. Historically, a higher-beta portfolio has tended to fall more than the market when the market falls, and rise more when it rises. A lower-beta one has tended to do the reverse.

Example:

Portfolio beta	Market falls 20%	Market rises 20%
0.6	about −12%	about +12%
0.92	about −18%	about +18%
1.5	about −30%	about +30%

An investor can judge whether they feel comfortable, holding on to assets with such behavior. An investor who feels unable to hold through a 30% fall may want to have a lower beta portfolio.

Does a Higher Beta Mean Higher Returns?

The short answer would be: it is still being debated. There are several research papers on this.

Fama and French (2004) review decades of tests showing that the relation between beta and average returns is flatter than the CAPM predicts: low-beta stocks earned more, and high-beta stocks less, than the model implies. Frazzini and Pedersen (2014) found that low-beta stocks earned higher risk-adjusted returns than high-beta ones, while Novy-Marx and Velikov (2022) argued that a lot of that result comes from how the strategy was constructed.

Limits of Beta

Beta is calculated from past returns, so it can miss recent changes (debt, changes in management, etc.)
The same stock can show a different beta in different lookback timeline
For a recently listed stock, there are too few data points for a reliable estimate
Single historical Beta doesn't work well on options, because their sensitivity to the market changes as prices move
Beta says nothing about whether a stock is cheap or expensive

FAQ

What does beta mean in stocks?
Beta shows how a stock's return has tended to move when the market moves.

What is beta in finance, and what is it measured against?
It is the slope of a stock’s returns against a benchmark’s returns. For US stocks, the benchmark is usually the S&P 500.

What does a beta of 1, 1.5, 0.5 or 0 mean?

1: moves in step with the market
1.5: moves about 1.5 times as much, (+15% if the market rises 10%)
0.5: moves about half as much
0: no link to the market

These are historical averages, not individual months.

What is the beta formula?
Beta = covariance of stock and market returns ÷ variance of market returns

How do you calculate beta in Excel or Google Sheets?
Put the returns in two columns and use =SLOPE(stock returns, market returns), with the stock range first.

What is a good beta for a stock? Is a high beta good or bad?
Neither. A higher beta only means bigger swings in both directions.

Can beta be negative, and what does a negative beta mean?
Yes. It means the asset has tended to move opposite to the market.

What is the difference between beta and volatility (standard deviation)?
Volatility counts all of a stock’s swings. Beta counts only the part that moves with the market, so a very volatile stock can have a low beta.

Why does the same stock show a different beta on different websites?
The sites may use different lookback periods, data frequencies (daily, weekly, monthly), benchmark indices, and raw versus adjusted formulas.

What is the beta of the S&P 500?
1.0, if it is the benchmark.

Which industries tend to have high or low betas, and why?
As of Damodaran’s January 2026 data, Semiconductors (1.52) and Auto & Truck (1.46) are high, and Regional Banks (0.40) and General Utilities (0.24) are low.

How do you calculate the beta of a portfolio?
Take the weighted average of the holdings’ betas, with each weight being that holding’s share of the portfolio.

How is beta used in the capital asset pricing model (CAPM)?
CAPM sets the required return at the risk-free rate plus beta times the market risk premium. That is a model’s required return, not a forecast.

Do high-beta stocks earn higher returns over time?
CAPM says they should, but the evidence is weak, and some research finds high-beta assets earned less than expected after adjusting for risk.

What is the difference between alpha and beta?
Beta is the part of a return explained by market movements. Alpha is the return left over after accounting for that.

What are the limitations of beta as a risk measure?
It looks backward, shifts over time, needs a long history, and says nothing about valuation, earnings or company-specific events.

What else can “beta” mean (the Greek letter, beta software)?
It is the second Greek letter and is also used in statistics for a regression coefficient. In software, a beta is a pre-release test version.