What does a high beta indicate about a stock?

A high beta signifies that a stock tends to move more than the overall market in response to changes in market conditions, indicating both a higher return potential and higher risk. Stocks with a beta greater than one are generally more volatile than the market; when the market moves up or down, these stocks are expected to move up or down by a greater percentage. This increased movement often correlates with a potential for higher returns during market upswings, but also suggests greater risk, as they may experience larger losses during downturns.

The key takeaway is that high-beta stocks are typically favored by investors looking for growth and the possibility of greater returns, albeit with a willingness to accept more significant risk. This concept is foundational in investment strategy, where part of the decision-making process involves balancing risk and return profiles according to an investor's goals and risk tolerance.