How is beta defined in finance?

Beta is defined as a measure of a stock's volatility in relation to the market. It quantifies the degree to which a stock's price is expected to move in correlation with the overall market movement. A beta of 1 indicates that the stock's price tends to move in line with the market, meaning if the market moves up or down by a certain percentage, the stock is expected to move the same percentage. A beta greater than 1 suggests the stock is more volatile than the market, while a beta less than 1 indicates it is less volatile. Investors use beta to assess risk; a higher beta may imply higher risk and potentially higher returns, while a lower beta may imply less risk and lower potential returns.

In contrast to beta, liquidity measures how easily an asset can be bought or sold in the market without affecting its price, the price-to-earnings ratio evaluates a company's current share price relative to its earnings per share, and market share indicates the percentage of an industry's sales that a company controls. These concepts serve different purposes in financial analysis and do not encapsulate the risk associated with a stock's price movement relative to market fluctuations as beta does.