Beta measures a stock's sensitivity to market movements. A beta of 1.5 means the stock typically moves 50% more than the market. This amplifies (or dampens) stress scenario impacts.
Formula
Adjusted Impact = Base Market Impact × βMethodology
Beta is a measure of systematic (market) risk from the Capital Asset Pricing Model (CAPM). It quantifies how much a stock moves relative to the overall market.
- β = 1.0: Stock moves with the market - β > 1.0: Stock is more volatile than market (amplified moves) - β < 1.0: Stock is less volatile than market (dampened moves)
In stress testing, beta adjusts the base market impact: - A stock with β = 1.5 would experience a 1.5× the market decline - A stock with β = 0.7 would only experience 0.7× the market decline
This captures the empirical observation that high-beta stocks fall more in crashes and rise more in recoveries.
How to Interpret
| Range | Label | Meaning |
|---|---|---|
| ≥ 1.5 | High Beta | Very sensitive to market moves - amplified gains and losses |
| 1 to 1.5 | Above Market | More volatile than the market average |
| 0.5 to 1 | Below Market | Less volatile than the market average |
| < 0.5 | Low Beta | Much less sensitive to market moves - defensive |
Data Source
Individual stock betas from market data. Stocks without data default to β = 1.0.
Reference
Sharpe, W.F. (1964). Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk. Journal of Finance, 19(3), 425-442
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For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.