Beta measures a security or portfolio's volatility, or systematic risk, in relation to the market as a whole (usually the S&P 500). Generally speaking, stocks with betas greater than 1.0 are thought to be more volatile than the S&P 500.

 

The capital asset pricing model (CAPM), which analyzes the connection between systematic risk and projected asset returns, employs beta (usually stocks).

 

The CAPM approach is frequently used to value hazardous securities and to predict projected returns of assets while taking into account both the risk of those assets and the cost of capital.