What does Beta measure in finance?

Beta is a measure used in finance to assess the systematic risk of an asset, which is the risk that cannot be diversified away and is associated with market-wide factors. This concept is particularly important in the context of the Capital Asset Pricing Model (CAPM), which relates the expected return of an asset to its risk as represented by beta.

A beta value of 1 indicates that the asset's price will move with the market. A beta greater than 1 signifies that the asset is more volatile than the market, meaning it tends to experience larger price fluctuations. Conversely, a beta less than 1 indicates that the asset is less volatile than the market. Therefore, beta provides investors with insight into how much risk they are taking on when investing in a particular asset relative to the overall market.

The other options do not accurately describe what beta measures. While option A mentions market risk, it is more appropriate to specify that beta specifically measures systematic risk, rather than overall market risk in general terms. Option C addresses liquidity, which is a different concept related to how easily an asset can be bought or sold in the market without affecting its price. Option D discusses historical performance, which is reflected in measures like past returns or analysis of stock price movements rather than the inherent