Which measure indicates a stock's risk level relative to the overall market?

Which measure indicates a stock's risk level relative to the overall market?

• A. Beta
• B. EPS
• C. Ticker Symbol
• D. Dividends

Answer: (A)

Beta measures how a stock tends to move in relation to the overall market. It captures the stock’s systematic risk—the portion of risk that cannot be diversified away. A beta around 1 means the stock tends to move with the market; a beta above 1 implies more volatility than the market, and below 1 implies less. This concept is central to models like the Capital Asset Pricing Model, where expected return is linked to market risk via beta. By contrast, earnings per share reflects profitability, the ticker symbol is just the stock’s identifier, and dividends are cash payouts to shareholders. While these are important, they don’t tell you how risky the stock is relative to the market.

Beta measures how a stock tends to move in relation to the overall market. It captures the stock’s systematic risk—the portion of risk that cannot be diversified away. A beta around 1 means the stock tends to move with the market; a beta above 1 implies more volatility than the market, and below 1 implies less. This concept is central to models like the Capital Asset Pricing Model, where expected return is linked to market risk via beta. By contrast, earnings per share reflects profitability, the ticker symbol is just the stock’s identifier, and dividends are cash payouts to shareholders. While these are important, they don’t tell you how risky the stock is relative to the market.