Beta vs Volatility: Key Differences

⚡In 30 seconds

  • •Learn how beta and volatility measure different aspects of risk.
  • •Uses 1 calculator(s) for hands-on examples

Beta and volatility both measure risk, but they capture different aspects. Understanding each helps you build a portfolio aligned with your risk tolerance.

What Is Volatility?

Measures how much an asset's price fluctuates over time.

Usually calculated as standard deviation of returns.

Higher volatility = larger price swings in both directions.

What Is Beta?

Measures an asset's sensitivity to market movements.

Beta of 1.0 = moves with the market.

Beta > 1.0 = more volatile than market; Beta < 1.0 = less volatile.

Key Differences

Volatility is absolute; beta is relative to a benchmark.

A stock can be volatile but have low beta if its movements are uncorrelated with the market.

Beta is useful for understanding systematic risk; volatility captures total risk.

Example: Comparing Two Stocks

Stock A has volatility of 40% and beta of 0.8. Stock B has volatility of 25% and beta of 1.3.

  • 1.Stock A: High volatility, but moves less than market
  • 2.Stock B: Lower volatility, but amplifies market moves
  • 3.In a market rally: Stock B gains more
  • 4.In a market decline: Stock B loses more
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FAQ

Which is more important for my portfolio?

It depends on your goals. For market-sensitive investors, beta matters more. For those focused on absolute risk, volatility is key.

Key Terms

BetaA measure of a stock's volatility relative to the ...VolatilityHow much an investment's price fluctuates over tim...DiversificationSpreading investments across different assets to r...

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