Final answer:
The beta of a stock measures a. how the stock price moves relative to the rest of the market. It's a financial metric that represents a stock's volatility in comparison to the market's volatility, reflected in indices like the Standard & Poor's 500 or the Dow Jones Industrial Average.
Step-by-step explanation:
The beta of a stock measures how the stock price moves relative to the rest of the market. This is a concept in finance used to describe the expected change in the price of a stock in response to changes in the overall market. To determine the performance of the stock market, analysts might look at broad measures such as the Standard & Poor's 500 index or the Dow Jones Industrial Average. These indices reflect the movement of a subset of the market stocks and are used as benchmarks to gauge the movement of individual stocks or the market as a whole.
When we talk about the beta of a stock, we're considering how sensitive it is to market movements. If a stock has a beta greater than 1, it's considered more volatile than the market, meaning it typically moves more than the market does. Conversely, a stock with a beta less than 1 is less volatile, and a beta of 1 would indicate that the stock's price moves in lockstep with the market. Calculating the beta is crucial for investors to understand the risk associated with a particular stock compared to the overall market risk.